Information and methodology used for assessment

2. The assessment of fulfillment of the core principles is not, and is not intended to be, an exact science. Banking systems differ from one country to the next, as do their domestic circumstances. Furthermore, banking activities are changing rapidly around the world and theories, policies, and best practices of supervision are evolving swiftly. Nevertheless, it is acknowledged internationally that the core principles are seen as minimum standards.

3. The assessment of compliance with each principle has been made on a qualitative basis. A five-part assessment system is used: compliant; largely compliant; materially noncompliant; noncompliant; and not applicable. To achieve a “compliant” assessment with a principle, all essential criteria generally must be met without any significant deficiencies. There may be instances where a country can demonstrate that the principle has been achieved through different means. Conversely, due to specific conditions in individual countries, the essential criteria may not always be sufficient to achieve the objective of the principle and, therefore, one or more additional criteria and/or other measures may also be deemed necessary by the assessor to judge that compliance is achieved. A “largely compliant” assessment is given if only minor shortcomings are observed and these are not seen as sufficient to raise serious doubts about the authority’s ability to achieve the objective of that principle. A “materially noncompliant assessment” is given when the shortcomings are sufficient to raise doubts about the authority’s ability to achieve compliance, but substantive progress had been made. A “noncompliant” assessment is given when no substantive progress toward compliance has been achieved or when insufficient information was available to conclude that substantive progress had been made toward compliance. An assessment of “not applicable” is rendered for a principle deemed by the assessors not to have relevance.”¹

4. The assessment has been carried out on the basis of the BTCA of 1990. The assessors had working sessions with representatives from the Financial Services Commission (FSC), various other governmental authorities, the bankers association, and commercial banks.

Market structure

5. The BVI banking system is composed of 11 banks with total assets amounting to approximately US$2.76 billion. All banks, except for the Development Bank of the Virgin Islands (DBVI), operate under the Bank and Trust Company Act (BTCA) and are subject to the supervision of the Financial Services FSC (FSC). Under the BTCA, entities that engage in the business of banking in the BVI must have a general banking license. The BTCA provides a restricted Class I Banking License, which limits deposit taking to persons outside the BVI and prohibits investing in assets that represent a claim on any BVI resident, with certain exceptions (Table 1).

Table 1.

Banking System As of June 30, 2002

(In millions of U.S. Dollars)

Source: FSC.

^1/Excludes Disa Bank (BVI) Limited (a subsidiary of a Panamanian bank), which has been in receivership since 2001.

^2/This corporation is engaged solely in intercompany treasury operations.

Table 1.

Banking System As of June 30, 2002

(In millions of U.S. Dollars)

Type of Institution		Number of Institutions	Total Assets	Total Capital
General license:
	Subsidiary of foreign banks	3	$765	$123
	Branches of foreign banks	3	834
Restricted license:
	Subsidiary of foreign banks 1/	3	1069	7
	Subsidiary of a foreign company 2/	1	39	38
Development Bank of the Virgin Islands		1	56	3
Total		11	$2,763	$171

Source: FSC.

^1/Excludes Disa Bank (BVI) Limited (a subsidiary of a Panamanian bank), which has been in receivership since 2001.

^2/This corporation is engaged solely in intercompany treasury operations.

View Table

Table 1.

Banking System As of June 30, 2002

(In millions of U.S. Dollars)

Type of Institution		Number of Institutions	Total Assets	Total Capital
General license:
	Subsidiary of foreign banks	3	$765	$123
	Branches of foreign banks	3	834
Restricted license:
	Subsidiary of foreign banks 1/	3	1069	7
	Subsidiary of a foreign company 2/	1	39	38
Development Bank of the Virgin Islands		1	56	3
Total		11	$2,763	$171

Source: FSC.

^1/Excludes Disa Bank (BVI) Limited (a subsidiary of a Panamanian bank), which has been in receivership since 2001.

^2/This corporation is engaged solely in intercompany treasury operations.

6. General license banks are primarily subsidiaries or branches of highly reputable regional and international institutions, which are subject to strong prudential regulation and effective consolidated supervision from their country of origin. These include Banco Popular de Puerto Rico, Barclays (which is being restructured into a new regional banking group called First Caribbean International Bank), HSBC, and Scotia Bank.

7. The general license banks are locally engaged primarily in traditional deposit taking and lending activities (residential mortgage, personal, small business and local government). Close to 50 percent of the deposits in the general license banks are from foreign individuals and corporations. Foreign funding received by general license banks relates primarily to taxation strategies of individuals, and functions as a complement to international business companies, trust companies, and mutual funds licensed in the BVI.

8. Total loans outstanding in the general license banks as of June 30, 2002, amount to approximately US$500 million, or approximately 30 percent of their total assets. The portfolio consists mostly of residential, personal, small business, and government loans, and the vast majority of these are to BVI persons. Approximately, 60 percent of total assets (or US$1 billion) is placed in deposits and short-term instruments with other banks, the home office, parent bank or affiliates, which represents an unusually high level of liquidity and, in various cases, a significant credit concentration risk.

9. Total capital for general license banks amounts to US$123 million, which is deemed adequate.

10. The restricted bank activity is concentrated in the Bank of East Asia (BVI) Limited with total assets amounting to US$977 million. This bank engages in deposit taking from customers of its affiliates and redeposits all its funds with its parent bank.

11. The DBVI operates pursuant to the Development Bank of the Virgin Islands Ordinance of July 1974 (DBVI Ordinance), and is engaged in traditional retail and commercial banking activities, including accepting deposits from the public. Even though the DBVI is currently exempt from the prudential oversight, it provides periodic regulatory information to the FSC on a voluntary basis. It is expected that the DBVI Ordinance will be amended to place the DBVI under the FSC’s regulatory jurisdiction.

General preconditions for effective banking supervision

12. In accordance with the core principle methodology, the preconditions for effective banking supervision include: (i) sound and sustainable macroeconomic policies; (ii) a well-developed public infrastructure; (iii) effective market discipline; (iv) procedures for efficient resolution of problems in banks; and (v) mechanisms for providing an appropriate level of systemic protection.

13. Generally, the BVI has in place the preconditions for effective banking supervision. Although the BVI lacks mechanisms for systemic protection, the composition of the onshore banking system (branches or subsidiaries of strong regional and international banks, which operate under systemic safeguards themselves) mitigate this shortcoming adequately. In addition, as discussed further in the following section, transparency in the system may be improved substantially. However, this deficiency is deemed not to have a significant adverse effect on the operations of the banking system, as the parent banking organizations are mostly publicly traded companies subject to strong transparency standards.

14. Accordingly, it is expected that international standards and best practices are applied by all participants in the BVI.

Recommended action plan and authorities’ response to the assessment

15. Four major issues that cut across several core principles should be addressed promptly:

• Priority should be given to recruiting additional qualified staff. Current staffing levels are inadequate to perform in-depth effective supervision of the BVI’s financial system. The FSC has adequate financial resources and has the flexibility adequately to compensate its personnel. The FSC may also consider utilizing consultants to perform various detailed testing procedures.

• The FSC, with the assistance of KPMG, is in the process of creating on-site supervision modules for multiple regulated persons including banks, trust and insurance companies. The successful implementation of these on-site supervision modules coupled with solving the staffing shortcomings will significantly influence the future effectiveness of the FSC’s supervision.

• The head of the FSC currently lacks legislative certainty. Full regulatory independence would be provided if the person with the ultimate supervisory and enforcement responsibilities had a fixed term appointment and if greater transparency were provided in the event of separation.

• The jurisdiction generally lacks transparency as to financial information on the market participants. The FSC is encouraged to engage in a process to substantially increase the level of transparency.

Table 4.

Recommended Action Plan to Improve Compliance of the Basel Core Principles

Table 4.

Recommended Action Plan to Improve Compliance of the Basel Core Principles

Reference Principle	Recommended Action	Response of Authorities
Legal framework for bank supervision (CP 1.3)	Place the Development Bank under the full authority of the FSC.	To be implemented by end-2003 or early 2004.
Prudential Standards (CP 5,6,7,8,9,10,11,12,13)	Implement prudential standards consistent with international standards and in manner to protect the safety and soundness of the system and the interests of depositors and creditors.	See comments below.
Internal Control and Audit (CP 13)	Implement Corporate Governance Standards and formal requirements for internal audit.	See comments below.
On-site and off-site supervision (CP 16,18)	Implement on-site supervisory program and implement changes to off-site supervisory reporting and analysis.	To be implemented.
Information Validation (CP 19)	As part of the implementation of on-site supervision, include the verification of regulatory reporting with bank records.	To be implemented.
Off-site supervision (CP 18)	Design methodology and add resources for effective and comprehensive understanding and analysis of audit and regulatory reports. Should continuously coordinate with home supervisor.	To be implemented.
Cooperation with Other Supervisors (CP24)	The FSC may consider increasing interaction with home country supervisors to increase understanding of the consolidated entity, risks assumed, and effectiveness of on-site/off-site supervision.	To be implemented.

View Table

Table 4.

Recommended Action Plan to Improve Compliance of the Basel Core Principles

Reference Principle	Recommended Action	Response of Authorities
Legal framework for bank supervision (CP 1.3)	Place the Development Bank under the full authority of the FSC.	To be implemented by end-2003 or early 2004.
Prudential Standards (CP 5,6,7,8,9,10,11,12,13)	Implement prudential standards consistent with international standards and in manner to protect the safety and soundness of the system and the interests of depositors and creditors.	See comments below.
Internal Control and Audit (CP 13)	Implement Corporate Governance Standards and formal requirements for internal audit.	See comments below.
On-site and off-site supervision (CP 16,18)	Implement on-site supervisory program and implement changes to off-site supervisory reporting and analysis.	To be implemented.
Information Validation (CP 19)	As part of the implementation of on-site supervision, include the verification of regulatory reporting with bank records.	To be implemented.
Off-site supervision (CP 18)	Design methodology and add resources for effective and comprehensive understanding and analysis of audit and regulatory reports. Should continuously coordinate with home supervisor.	To be implemented.
Cooperation with Other Supervisors (CP24)	The FSC may consider increasing interaction with home country supervisors to increase understanding of the consolidated entity, risks assumed, and effectiveness of on-site/off-site supervision.	To be implemented.

Authorities’ response

16. The FSC has recently signed off on the Fiduciary/Company Management On-site Monitoring Program and the Banking On-site Monitoring Program is expected to be signed off on shortly. Although the FSC has not had a formal on-site inspection program, because of the size and nature of the banking business in the BVI, the Bank Prudential Visit Questionnaire has proven to be a good source of gaining adequate insights into the banks’ operations. A new Bank Prudential Visit Questionnaire will allow the FSC to assess banks assets quality amongst other things.

17. The FSC follows a risk based approach to supervision, which has led it to concentrate its supervisory work on, asset liability management, financial performance, capital adequacy requirements, and management of credit risk.

18. With regards to concentration and liquidity risks, draft guidelines developed along international standards are currently with the banking industry for consultation. The proposed standards for credit policies and large exposure were developed to be consistent with the BCP. Although no specific rules have been set for banks’ loan, investment policies and practices, since these are considered management responsibilities, the FSC expect banks to identify, monitor and control credit risk. Clear and precise rules with regards to large exposure have been developed. No specific loan classification or provisioning rules have been issued but the FSC expects banks to have internal policies that are consistent with international best practice.

19. Banks are required by the FSC to take reasonable care to establish and maintain systems and controls as appropriate to the nature and scale of their operations. BIS papers on Internal Controls and Operational Risks were issued to the banks as well as Interest Rate Risk. The nature of the banking systems in the BVI is such that there is an independent internal audit function conducted by either head office or parent bank. The quality of banks systems and controls and internal audits will be tested on an on-going basis when the FSC commences on-site inspections.

20. Country risk is not significant for BVI banks as most loans are to domestic companies or individuals. Where there are country risks exposures, the exposures are to OECD and G-10 countries. Connected lending is monitored from the prudential returns through the sections titles Related Party Deposits and Related Party Loans and Advances. All banks licenses have been approved and granted on the explicit understanding that the banks would be regulated according to the BIS standards.

21. The FSC now requires all branches to file audited financial statements commencing end of financial year 2003. A proposed amendment to the BTCA will require all banks to publish financial statements in the local press.

22. Prudential guidelines on the following are being drafted and are due to be implemented by end-2004: bank licensing; large exposures (completed); liquidity management (completed); credit concentration limits; risk weighted capital adequacy ratio; credit classification for provisioning purposes and income recognition; general principles for maintenance of accounting and other records and internal control systems; internet banking; corporate governance; related party transactions; relationship between financial institutions and external auditors; public disclosure of information; interest rate risk; country risk; market risk; code of practice for banks; and prudential returns (completed).

Information and methodology used for the assessment

23. An IMF-led Offshore Financial Sector (OFC) assessment of the British Virgin Islands (BVI) was conducted November 11–23, 2002. As part of the OFC, a detailed assessment of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime was prepared using the Methodology for Assessing Compliance with Anti-Money Laundering and Combating the Financing of Terrorism Standards (AML/CFT Methodology). The AML/CFT Methodology was endorsed by the Financial Action Task Force (FATF) in October 2002 and the Fund and Bank Boards in November 2002.

24. The AML/CFT assessment was conducted by a team of assessors under the supervision of the Fund staff and an independent AML/CFT expert (IAE), who was not under the substantive supervision of Fund staff, and was selected from a roster of experts in the assessment of criminal law enforcement and non-prudentially regulated activities. IMF staff and experts reviewed the relevant AML/CFT laws and regulations, and supervisory and regulatory systems in place to deter money laundering (ML) and financing of terrorism (FT) among prudentially regulated financial institutions, including banking, insurance, and securities as well as measures relating to trust and company service providers (TCSPs), which are macro-relevant and vulnerable to money laundering. These aspects of the assessment were conducted by Ms. P. Moni SenGupta (LEG) and Ms. Marie-Christine Dupuis, a consultant from the United Nations Global Program Against Money Laundering.

25. Aspects of the capacity and implementation of the criminal law enforcement systems were assessed by Mr. Atle Roaldsøy, an IAE, from the Norwegian Ministry of Justice. Mr. Roaldsøy also completed the assessment of implementation of AML/CFT measures for money remitters, which are present in the BVI and vulnerable to ML but are not of macro-relevance to the financial sector. Aspects of the implementation and effectiveness of criminal justice measures are noted in italicized criteria in the assessment report. Aspects of implementation of preventive measures for money remitters are noted in specific line items in the discussion points for criteria 43 through 67, where necessary.

26. The assessment is based on a review of existing legislation, regulations, and supervisory guidelines and instructions that are currently in place. The authorities, in particular the FSC provided substantial supporting documentation, including responses to IMF questionnaires, independent research, and relevant aide-mémoires on AML/CFT progress that have been disseminated to the financial community and to other international bodies. The mission was advised of future and planned measures for changes in legislation and such measures are commented upon within the assessment report as a reflection of the response of authorities to self-identified needs and weakness, but do not constitute a basis of assessment ratings assigned.

27. The assessment is also based on meetings with various authorities, including the FSC, Attorney General’s Chambers (AGC), the Financial Investigations Unit of the Royal Virgin Islands Police (Police FINU),² the Financial Secretary, Customs Office, and representatives of the private sector who are involved in implementation of AML/CFT measures. Authorities in the FSC and Police FINU also briefed the mission concerning upcoming proposals for which internal and confidential papers could not be disclosed. The mission found a generally satisfactory level of cooperation from authorities and the private sector and particularly appreciates the time committed and responsiveness of the FSC and Police FINU throughout the course of the mission.

General situation of money laundering and financing of terrorism

28. The BVI’s vulnerabilities to ML and FT arise primarily in two areas. First, as noted in the Review of Financial Regulation in the Caribbean Overseas Territories and Bermuda prepared by KPMG (the KPMG Report) and the CFATF’s first round assessment of the BVI, BVI is located in an increasingly important transshipment corridor for the trafficking of cocaine from producer countries to the south and consumer countries to the north. In 1998, the CFATF found that the major problem being addressed by the police was drug trafficking. Second, the BVI is a major offshore financial center, with a dominant share of the global market for international business corporations (IBCs) that the CFATF concluded “given the robust financial activity in the country it is possible that incidences of money laundering do occur in the British Virgin Islands, particularly at the layering and integration stages.” As with many offshore financial centers, the BVI has been under scrutiny because the proliferation of IBCs, which are susceptible for use in money-laundering schemes because they can provide a nearly “impenetrable layer of protection around the ownership of assets.”³ The IBCs, while serving many legitimate business purposes have come under criticism, primarily because the activities of the IBCs and the identities of those controlling them are frequently separated by location. The criticism stems from not infrequent instances where IBCs “are formed without commercial or financial justifications, except to conceal the origin and destination of goods in international commerce, to circumvent arms control laws and to evade taxes by moving profits and assets out of the reach of the tax collector.”⁴

Overview of measures to prevent money laundering and terrorism financing

29. The primary legislative and supervisory regulations and guidelines for AML/CFT are the Proceeds of Criminal Conduct Act, 1997, (the PCCA), the Anti-Money Laundering Code of Practice, 1999, as amended in 2000 and 2001(the AMLCP), the Reporting Authority (Constitution and Procedure) Order, 1998, and the Anti-Money Laundering Guidance Notes for the BVI Financial Services Sector (Guidance Notes), which have been published since 1999 and are based on those of the United Kingdom. In contrast to the treatment of the Guidance Notes in the U.K. and other Crown and Overseas Territories, the AMLCP specifically incorporates the Guidance Notes into its requirements and renders the Guidance Notes subject to sanction for noncompliance, although the Guidance Notes themselves state these are not mandatory but represent best practices. Money laundering related to drug trafficking is captured by the Drug Trafficking Offenses Act 1992, as amended in 2000, and the Drug Trafficking Offenses (Designated Countries and Territories) Order, 1996.

30. In addition to these primary pieces of legislation directly focusing on ML, other legislation that establishes the framework for supervision also contribute to the supervisory measures for AML/CFT, which include the Banks and Trust Companies Act 1990, as amended, (BTCA), the Financial Services Commission Act (FSCA), the Company Management Act, 1990, as amended (CMA), the Mutual Funds Act 1996, as amended (MFA), and the Insurance Act, 1994 (IA). Regulations governing these sectors are also relevant for AML.

31. The BVI has specific legislation governing international cooperation and mutual legal assistance that are used regularly for the effective and efficient delivery of mutual legal assistance and providing assistance for international supervisors. The BVI focuses on providing assistance to other jurisdictions in money laundering investigations because, as a general matter, larger and more complex investigations are often already underway in other jurisdictions and the nexus of the activities is frequently stronger abroad. On balance, the BVI does not make as many mutual legal assistance requests as it receives from abroad, although the Attorney General’s Chamber advises that recent developments in the territory’s law enforcement has witnessed a steady rise in the requests by the BVI for mutual legal assistance. However, specific figures on the increase in BVI requests to foreign authorities were not provided to the assessors. The main legislation are the Criminal Justice (International Cooperation) Act, 1993 (CJIC) and the Financial Services (International Cooperation) Act, 2000 (FSIC). The BVI has a specific Mutual Legal Assistance (United States of America) Act, 1990, with the United States.

32. With respect to the financing of terrorism (FT), the BVI is subject to two statutory instruments enacted by the United Kingdom that are applicable to Overseas Territories including the BVI. These are No. 3366 in 2001, The Terrorism (United Nations Measures) (Overseas Territories) Order, and No. 1822 in 2002, the Anti-Terrorism (Financial and Other Measure) Overseas Territories), which address the major requirements for FT under the 1999 United Nations Convention for the Suppression of Financing of Terrorism and the United Nations Security Council Resolution (UNSCR) 1373.

33. The BVI has taken a pragmatic approach to its legislative framework, designing its major AML/CFT supervisory legislation to apply broadly to banks and trust companies, insurance business, the business of company management, business of mutual fund or providing services as a manager or administrator of a mutual fund, money remittance or transmission, any activity in which money belonging to a client is held or managed by an attorney-at-law or accountant, and the business of acting as a company secretary. The Development Bank of the Virgin Islands is not yet subject to prudential supervision (although it is scheduled to be later in 2003) and is not yet subject to AML/CFT due diligence, record keeping, or internal controls requirements, although they are subject to the suspicious transaction reporting laws. Money remitters, of whom the FSC estimates three known entities, are not subject to licensing of prudential supervision, but a proposed licensing and regulatory act is expected to be enacted in the first half of 2003.

34. A single supervisor, the FSC is responsible for both prudential supervision and ensuring compliance with AML measures. As the FSC was established by the FSCA in January 2002, there have been numerous tasks imposed on its Board and staff to address the statutory and regulatory remits. The managing director of the FSC is an experienced civil servant who was a former chair of the Caribbean Financial Action Task Force (CFATF) and he and other staff of the FSC have been actively involved in AML/CFT efforts in the region for several years. The FSC was created in part to respond to concerns about the independence and effectiveness of supervision arising out of the KPMG Report. The FSC is deliberately building its staff to cover the range of its mandates, including enhancing the staff for AML/CFT compliance, by filling vacancies in the Legal and Enforcement Division; such staff will have a significant role in implementing the legal and supervisory framework under the AMLCP and the Guidance Notes. Full implementation of on site supervision has not been completed and the depth of skill available currently is not yet at the levels necessary to ensure effective and comprehensive supervision for AML/CFT. Nevertheless, the mission notes significant progress in assembling the supervisory tools that are needed, to complete the internal manuals for inspection of the financial sectors, and to exercise the full range of the FSC’s supervisory mandate that affect AML/CFT.

35. The FSC Board and Management exhibit strong commitment to ensuring that the FSC becomes an effective and well resourced regulator. Nevertheless, it is not unrealistic to expect that a period of implementation and structural enhancement is necessary to ensure that the international standards can be fully and effectively incorporated into the FSC’s supervision. The FSC has a realistic understanding of the tasks that lay ahead in improving supervision, in particular the Director, Insurance Business, has agreed that on-site inspections of Insurance managers and their required compliance would provide evidence of alleged deficiencies. It was also agreed that as there were not yet IAIS principles specifically on AML/CFT, guidance notes based on IAIS principles would be suitable at this stage. The Director of Banking and Fiduciary Services has responded to the assessors’ conclusion that both the FSC and the individual financial service sector participants should have procedures in place to test the due diligence that is undertaken outside of the BVI by affirmatively proposing that the FSC amend the AMLCP to require all due diligence to be kept in the BVI in line with the Basle CDD Paper.

36. The Reporting Authority (RA) was established under the Proceeds of Criminal Conduct Act and is the financial intelligence unit responsible for receiving and disseminating suspicious transaction reports (STRs). It is independent of the FSC and consists of three members appointed by the governor and drawn from different disciplines concerned with the financial services industry but is not a regulatory body. The head of the reporting authority is the managing director of the FSC, and its two other members are the head of the Financial Investigations Unit of the Royal Virgin Islands Police Force (Police FINU), which is the investigative arm of the RA, and a Senior Crown Counsel from the AGC. The deputy managing director of the FSC is the Secretary for the RA. The RA has been a member of the Egmont Group since 1999.

37. The investigative authority of the RA is derived from the fact that the head of the Police FINU is also a member of the RA. The FSC, the AGC and the Joint Anti-Money Laundering Coordinating Committee (JAMLACC) are responsible for setting the AML laws, regulations, guidelines and codes of conduct. The JAMLACC is the committee charged with promoting AML guidance, training, and education and it is comprised of a cross-section of public and private sector representatives. The JAMLACC played a key role in the enactment of the AMLCP and prescribed the Guidance Notes, but is not active at present.

38. With respect to FT, the two Statutory Instruments passed by the United Kingdom vest responsibility for FT reporting and detection with the governor, however, the AGC provide support with respect to FT orders. Authorities advise that FT orders to date have not resulted in any identification or freezing of FT related assets.

39. The AGC has responsibility for prosecutions of ML and FT offenses, although prosecutions in the BVI are few and most resources are focused on developing usable evidence for prosecutions abroad. The AGC also has primary responsibility for international cooperation through mutual legal assistance. The mechanisms for mutual legal assistance are generally efficient and the quantity and quality of the mutual legal assistance provided by the BVI authorities is evidenced by the large number of requests received and processed. The authorities are to be commended on their efforts in supporting international investigations and prosecutions. Because of the focus on supporting international criminal investigations, it has not been considered to be a serious need for development of prosecutions in the BVI; nevertheless, the AGC has a dedicated Commercial Crimes Unit that has expertise in ML and financial crimes.

40. The authorities have advised of a proposal to restructure the functions of financial intelligence analysis and investigation of financial crimes by enacting a Financial Investigative Agency (FIA), which will be a separate statutory agency with full police powers. Although the mission did not have access to confidential governmental drafts on the proposed FIA, authorities advised that the FIA will have separate powers to conduct the financial intelligence and investigative functions necessary to process suspicious transaction reports (STRs) as well as to conduct financial investigations originating from mutual legal assistance requests and other international requests. The FIA will be comprised of staff seconded from the Police, Customs, Immigration, AGC, and other relevant agencies. The authorities advise that the FIA should be constituted by the second quarter of 2003.

Assessing criminal justice measures and international cooperation

Table 5.

Detailed Assessment of Criminal Justice Measures and International Cooperation

Table 5.

Detailed Assessment of Criminal Justice Measures and International Cooperation

I—Criminalization of ML and FT (compliance with criteria 1–6)

Description

BVI criminal provisions for ML and FT are contained in a number of separate legislative instruments, including the PCCA, the Drug Trafficking Offenses Act (DTOA), 1992, and the two statutory instruments issued by the United Kingdom and applicable to overseas territories. These provisions have differing scopes and coverage.

With respect to multilateral conventions and responses to United Nations Resolutions, the BVI is dependent on the United Kingdom. Accordingly, the BVI is not separately a party to any multilateral or bilateral conventions on money laundering because as an overseas territory the United Kingdom is the appropriate signatory on behalf of the BVI. Nevertheless, money laundering is criminalized in the BVI in accordance with the Vienna and Palermo Conventions. The BVI has not requested the U.K. to extend the Palermo Convention to the territory as yet because of issues surrounding provisions on wire tapping and surveillance. The Attorney General’s Chamber advises that currently the Telecommunications Act (Cap. 171) and the Wireless Telegraphy Act, 1949 of the U.K. provide legal mechanisms for wire tapping but then authorization is placed in two different functionaries, namely the Governor in Council and the Governor, respectively. The objective is to consolidate the law on the subject with a single functionary performing the task of authorizing wire tapping and ensuring that there are adequate checks and balances to safeguard individual rights. Upon such consolidation, the BVI then may request that the U.K. extend the Palermo Convention.

Two statutory instruments, No. 3366 in 2001, The Terrorism (United Nations Measures) (Overseas Territories) Order, and No. 1822 in 2002, the Anti-Terrorism (Financial and Other Measure) Overseas Territories) Order that apply to the overseas territories was passed by the U.K. As a result of these two instruments, the BVI is now in full compliance with the 1999 United Nations Convention for the Suppression of the Financing of Terrorism.

There was a decision of the executive council on November 6, 2002 to officially ask the U.K. to extend the 1999 Convention to the BVI.

The United Kingdom also responds to the UNSCRs on behalf of the BVI. Statutory Instrument 3366 authorizes the Governor of the BVI to issue orders necessary to implement the FT lists contained in the UNSCRs. The BVI’s response to the questions posed in UNSCR 1373 was completed as part of the U.K.’s response.

Money laundering is criminalized in Sections 28 through 30 of the PCCA on the basis of the Palermo Convention. Section 28 criminalizes enlisting another to retain the benefit of criminal conduct. Section 29 criminalizes acquisition, possession or use of proceeds of criminal conduct. Section 30 criminalizes concealing or transferring proceeds of criminal conduct. In addition, Section 31 criminalizes tipping off about the existence of a suspicious transaction report to the Reporting Authority or a money laundering investigation. Predicate offenses for Sections 28 through 30 of the PCCA extend to all serious offenses, meaning indictable offenses, which would be triable at the High Court before a jury. Generally, indictable offenses are subject to three years imprisonment at minimum, as advised by the AGC (Section 2(5)(d) of the PCCA).

The PCCA predicate offenses do not, however, include drug offenses. Prior to enactment of the PCCA, money laundering was criminalized on the basis of the Vienna Convention in the Drug Trafficking Offenses Act, 1992 (DTOA), which captured proceeds of drug trafficking. Section 23B criminalizes concealing or transferring property representing the proceeds of drug trafficking. In both the PCCA and the DTOA, the predicate offense need not have occurred in the BVI so long as the offense constituted a predicate offense within the territory. (Section 2(1) PCCA and Section 2(1) DTOA).

The AGC advises that the PCCA extends to persons who have committed money laundering as well as both money laundering and the predicate offense, and it is not necessary that a person be convicted of a predicate offense to establish that the proceeds originate from a predicate offense in order to prosecute for money laundering.

The “proceeds of criminal conduct” are defined broadly in the PCCA and represent any property, benefit, or pecuniary advantage derived. Section 2(1) and 2(5) PCCA. Further, the offense of acquisition, possession, or use of proceeds of criminal conduct in Section 29 applies to property that directly or indirectly represents the proceeds of crime.

FT has been criminalized through two statutory instruments passed by the U.K. that are applicable to the overseas territories, including the BVI. Statutory Instrument 2002 No. 1822 criminalizes:

Fundraising for terrorism (Section 6); Use and possession of money or other property that is known or there is a reasonable cause to suspect that it will be used for terrorism (Section 7); Entering into funding arrangements through which it is known or there is reasonable cause to suspect that the funds will be used for terrorism (Section 8); Money laundering by becoming involved in an arrangement which facilitates the retention or control of terrorist property by concealment, removal from the jurisdiction, transfer to nominees, or otherwise (Section 9); and Failing to disclose to a constable a belief or suspicion of a terrorist financing offense in Sections 6 through 9.

Statutory Instrument 2001 No. 3366 criminalizes:

Collection of funds for the purposes of terrorism (Section 3); and Making funds available directly or indirectly to the benefit of a person who commits, attempts to commit, facilitates or participates in the commission of acts of terrorism. (Section 4).

Section 4 of Statutory Instrument 1822 and Section 3 of Statutory Instrument 3366 specify that actions criminalized for FT include actions occurring outside the territory.

The offenses of ML and FT apply to all persons, including legal entities under the PCCA and Section 1(5) of Statutory Order No. 3366. However, the FT offenses in Statutory Order 1822 are not specifically extended to legal entities.

The intentional element of the ML offenses is satisfied if the defendant knows or suspects that the money, property or assets represents the proceeds of criminal conduct. The AGC advises that the intentional element may be discerned under a “should have known” standard by inferring knowledge from objective factual circumstances.

The criminal offenses for ML in PCCA Sections 28 through 31 carry penalties of imprisonment for a term not exceeding six months or to a fine not exceeding US$3,000 for a summary conviction. Conviction on these offenses on indictment carry penalties of imprisonment for a term not exceeding 14 years and a fine not exceeding US$20,000. (Sections 28(8), 29(11), 30(4) of the PCCA). Similar provisions are contained in the DTOA. Specifically, Section 23B imposes imprisonment of not more than six months or a fine of up to US$10,000 for summary conviction and imprisonment of up to 14 years or a fine of up to US$50,000 for a conviction upon indictment.

For FT offenses under Statutory Instrument No. 1822, conviction on indictment carry a penalty of imprisonment not exceeding five years, to a fine, and for summary conviction to imprisonment of up to six months and a fine, up to a statutory maximum. FT offenses under Statutory Instrument 3366 imposes imprisonment for a term not exceeding seven years or a fine for conviction upon indictment and imprisonment up to six months or a fine up to £5,000 (about US$7,890) for a summary conviction.

There appear to be effective legal means to carry out criminal prosecutions. The tools are being implemented in a manner to give emphasis to the BVI’s role as a provider of effective evidentiary materials for investigations and prosecutions abroad. As a result, the criminal provisions for ML and FT are not widely used within the BVI.

Efforts are underway to enhance resources for criminal investigations and prosecutions. A commercial crimes unit has been formed within the AGC to focus on economic crimes, including ML. There is a Police FINU, which is the white collar crime unit for investigations of economic crimes and ML. There is a proposal to have a separate statutory Financial Investigative Agency. See criterion 24, below for additional details.

Analysis of Effectiveness

The BVI criminal provisions are generally compliant with international standards, and consistent with the Vienna and Palermo Conventions. FT is criminalized consistent with the International Convention for the Suppression of the Financing of Terrorism. The criminal provisions for ML are not extensively used for prosecution because most investigative evidence developed for ML is provided for foreign prosecutions, where frequently the cases are stronger and there are more resources to conduct complex investigations and prosecutions. Nevertheless, the criminal provisions could be put to greater use to open criminal cases within the BVI. Acting primarily as reactive provider of information for foreign prosecutors may not always allow for the best use of information developed. Opening more criminal files and beginning preliminary investigations will both increase the use of the BVI criminal provisions and will allow for more meaningful development of investigative evidence for use in foreign prosecutions as well.

Recommendations and Comments

As written, the legal provisions for ML and FT appear to be adequate but these have not been effectively tested in criminal investigations and prosecutions. Further efforts should be made to increase prosecutions for ML and FT where the evidence exists to support domestic prosecutions.

Implications for compliance with FATF Recommendations 1, 4, 5, SR I, SR II

The BVI legal provisions for ML are largely compliant with the requirements for FATF Recommendations 4 and 5. The FT offenses in the two Statutory Instruments, as written, comply with the requirements for SR II.

II—Confiscation of proceeds of crime or property used to finance terrorism (compliance with criteria 7–16)

Description

Confiscation provisions in the PCCA are directed primarily to recovering a sum of money that represents the benefit derived from the ML offense rather than to confiscation of the property laundered, proceeds from, instrumentalities used in or intended for use in the commission of any ML offense, although the value of the property laundered is used to determine the benefit to the defendant of the offense. The DTOA contains specific provisions for the confiscation of instrumentalities of ML associated with drug crimes but the PCCA forfeiture provisions do not contain similar language. Nevertheless, the AGC asserts that the inherent power of the courts allows for such confiscation, although actual cases of confiscation of property laundered or instrumentalities of non drug offense related ML have not been cited.

Sections 6 and 12 of the PCCA provide for confiscation of a sum of money determined by the court upon conviction for a money laundering offense. The amount confiscated represents the benefit derived from the ML offense by the defendant. Similar provisions are in the DTOA, Section 5. The PCCA confiscation provisions extend to the value of the property laundered but not to the instrumentalities used in or intended to be used to commit a ML offense or predicate crime. Forfeiture of cash is contained in the DTOA Section 35 for cash from drug offenses. Forfeiture of other property connected to the commission of an offense may be subject to the forfeiture provisions in Section 26 of the Criminal Code, if the property relates to specific offenses enumerated in the provision, specifically Sections 79, 80, 81, or 101 of the Criminal Code. Conviction for offenses under the Drugs (Prevention of Misuse) Act, (Cap. 178), authorizes forfeiture of all drugs and any instrumentalities associated with the offense. The PCCA does not contain a specific provision for forfeiture or assets laundered or instrumentalities of ML, although enforcement of confiscation orders under the PCCA may be effectuated against any realizable property that includes assets laundered. Accordingly, while there is no direct confiscation of assets laundered under Section 6 of the PCCA, effectively these can be confiscated in lieu of the confiscation payment.

The PCCA provides for provisional measures for the freezing/seizing of property that is or may become the subject of confiscation. (Sections 16, 17 & 18 of the PCCA). The application to freeze or seize property is made on an ex parte basis to a judge in chambers by a prosecutor, subject to giving notice to persons affected by the order (Sections 17(4) and 18(2) of the PCCA.)

There is no provision in the PCCA for the confiscation of property of organizations that are found to be primarily criminal in nature, although Statutory Instrument 3366 authorizes the governor to freeze funds associated with terrorism and the financing of terrorism. Nevertheless, the AGC advises that Section 4 of the Public Order Act (Cap. 63) proscribes quasi-military organizations (whether corporate or incorporate) and empowers the High Court, upon an application by the Attorney General to direct an inquiry to be held and dispose of property of any such organization as the court deems fit, including forfeiting such property to the Crown. Section 16 of Statutory Instrument 1822 authorizes the forfeiture of terrorist cash, including cash that is intended to be used for the purposes of terrorism or is or represents property obtained through terrorism.

The AGC advises that property of equivalent value may be forfeited in the event that property subject to forfeiture is not available.

The AGC advises that civil forfeiture is contemplated under general common law principles and is an available tool upon application to the High Court.

The PCCA Section 36 authorizes a police officer to apply to the High Court for production orders for materials needed to investigate a ML offense. The AGC, advises that the scope of this provision is sufficiently wide to encompass orders to trace and identify property that may become subject to confiscation, even if these are not specifically listed in the production orders.

In addition, orders for tracing and identification of property are authorized by the PCCA Section 6(1) that requires the court to first determine whether the offender has benefited from any relevant criminal conduct, prior to ordering confiscation. To carry out this obligation, the court has wide authority to trace the proceeds of crime. In addition, there are general powers of a Magistrate to investigate all charges which he is not empowered to try summarily. (Section 22(c) MCP). On an administrative level, section 30(1) of the FSCA authorizes the Board of the FSC to request a person connected to a financial services business to provide the FSC with such information as the Board may specify. Similarly, section 32 of the FSCA authorizes the FSC to request information or the production of documents by issuing a notice. Moreover, in relation to or with respect to the commission of an offense under financial services legislation, section 32 of the FSCA authorizes the FSC to apply for a search warrant in order to discover material that may be removed, tampered with or destroyed or used in the commission of an offense. Thus, the AGC advises that these provisions, in addition to the FSC’s authority to appoint examiners to conduct investigations on its behalf in relation to an enforcement action under Section 37 of the FSCA, have the cumulative effect of imbuing the FSC with statutory powers to trace and identify assets of a regulated person or other person thereto through well-established enforcement mechanisms. Nevertheless, specific administrative authority to identify and freeze assets for a short period would be helpful.

Section 4(3) of the PCCA specifically allows for voiding of gifts made by defendants convicted of a ML offense. In addition, the AGC advises that other orders to void contracts may be sought through application to the courts under the freezing and seizing provisional measures in Section 17(4) and 18(2) of the PCCA.

With respect to freezing and blocking of assets or funds associated with FT, section 5 of Statutory Order 3366 authorizes the governor to freeze funds where there is reasonable grounds to suspect that the funds are for, or being held on behalf of, a person who commits, attempts to commit, facilitates, or participates in acts of terrorism or a person controlled by a suspected terrorist.

The authorities have not compiled statistics on frozen funds, although the Attorney General advises that no funds have been frozen as a result of the UNSCRs.

See criterion 13. The governor’s authority to freeze funds is not limited to lists provided by the U.N. under Section 5 of Statutory Order 3366.

With respect to confiscation, Section 4(3) of the PCCA requires the court to consider transfers of property by the defendant either in the form of outright gifts or where the consideration rendered is significantly less than the property transferred. In the latter case, the court must consider the rights of any bona fide or innocent third party recipient by taking into account the value of the consideration rendered by the third party. In addition, Section 3(5) concerning what seized property can be sold or realized requires a consideration of the effect of sale on the value of any beneficial interest in the property held by a bona fide third party. Further, Statutory Instrument 1822 Section 5(7) allows a recipient of an order that freezes funds associated with terrorism to apply to the governor for an order setting aside the freezing.

With respect to the assertion of rights of bona fide third parties, the AGC advises that the party must make an affirmative application to the court by seeking a civil order to assert rights over the property forfeited or confiscated. The burden of proof falls on the applicant party.

As a general principle, the AGC advises that confiscated assets and forfeited property are divided among the jurisdictions involved. Compensation of innocent third party victims is also provided for.

BVI has asset sharing arrangements with the United States and is in the process of negotiating an arrangement with Canada through the Foreign and Commonwealth Office. As a general rule, the BVI shares confiscated and forfeited assets with other jurisdictions which have an interest in the property and criminal proceedings have been or will be initiated in the other jurisdiction. Assets confiscated or forfeited under mutual legal assistance requests are transmitted directly to the requesting jurisdiction.

Analysis of Effectiveness

Confiscation for proceeds of criminal conduct, including direct and indirect benefit derived from money laundering and provisional measures for freezing of assets are adequate. However, the forfeiture provisions applying to property laundered and instrumentalities of ML are not clearly defined in the law outside of the context of narcotics and a short list of relevant crimes. Nevertheless, the AGC advises that the courts have inherent power to forfeit instrumentalities to the Crown or in any manner considered fit and that the absence of specific forfeiture provisions in the PCCA does not mean that the laundered property cannot be the subject of forfeiture. The AGC further asserts that the PCCA regime authorizes the prosecutor to apply for a confiscation order in relation to laundered property connected to an offense that has been established. However, under Sections 15 through 20 of the PCCA, it appears that such authority applies to the property laundered or instrumentalities of ML only when these are being sought to enforce confiscation orders when the defendant fails to pay rather than to permitting direct forfeiture of proceeds laundered or instrumentalities of ML directly. It is not clear under what circumstances confiscation orders have been enforced against property or assets laundered under the PCCA authority.

There are specific provisions for the freezing, restraint and forfeiture of assets used to finance terrorism or intended to be used to support terrorist activities.

Authorities do not formally keep statistics, although they assert that the information is readily known. However, it would be beneficial to have formal, meaningful, and reliable statistics that will help them evaluate their resource and staffing needs, understand where to deploy their limited resources and enhance their reputation for effective confiscation controls in the world community.

Training regarding confiscation is addressed under general investigative trainings attended. There is an apparent lack of staff in the Legal and Enforcement section of the FSC to carry out the necessary control functions may require additional training when staffing is completed.

Recommendations and Comments

The PCCA or other legislation should provide for a specific forfeiture provision that allows for forfeiture of all property laundered and instrumentalities associated with a ML offense.

Additional authority should be provided to administrative bodies to identify and trace assets suspected of being ML or FT related.

Confiscation provisions in the PCCA and DTOA appear to have been put to limited use and as a result the level of assets seized and confiscated is not readily available. Systems for executing the confiscation authority and managing the disposition of confiscated assets are not fully developed in the BVI.

Comprehensive statistics on freezing, seizure, and confiscation should be compiled and maintained, including information on the types and amount of property frozen, seized and confiscated and information concerning the ML offense or predicate offense.

Implications for compliance with FATF Recommendations 7, 38, SR III

BVI’s legal provisions for confiscation are largely compliant with the minimum requirements of FATF Recommendation 7 and SR III insofar the range of legal measures allow for confiscation upon conviction of the benefit of ML, and there are some provisions for instrumentalities as well as the possibility of in rem action for property laundered. Nevertheless, BVI’s legal provisions for freezing, seizure, and confiscation of assets are limited on their face and, in practice, may not be sufficient to cover property laundered or instrumentalities of ML, except for those related to a limited list of predicate crimes. Additional authority for provisional measures and confiscation are needed to address the property laundered or instrumentalities used for ML and FT to achieve full compliance with FATF 7 and 38. In addition, the measures in place must be used to maximum effect to inhibit the movement of proceeds of crime, property laundered and instrumentalities of crime.

III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels (compliance with criteria 17-24)

Description

The Reporting Authority (RA) is the financial intelligence unit in the BVI, which was established under Section 27 of the PCCA and was constituted by the Reporting Authority (Constitution & Procedure) Order, 1998. The RA is comprised of the managing director of the FSC, who is also the head of the RA, the Head of the Police FINU, and a Senior Crown Counsel from the Attorney General’s Chamber. The Deputy managing director of the FSC is the Secretary of the RA. The Reporting Authority has been a member of the Egmont Group since 1999.

The RA is empowered to receive and disseminate STRs. The RA is also the conduit for exchange of information with counterpart FIUs abroad. As a matter of practice, STRs are distributed to all members of the RA. If needed, a meeting or consultation among the RA members will be convened. On a practical level, the head of the Police FINU frequently conducts the preliminary analysis for the RA and determines whether additional police investigative resources should be devoted. If the STR raises regulatory issues, in the view of the RA, the information may be disclosed to the FSC to be used for regulatory purposes. As both the managing director and the deputy managing director of the FSC participate in the RA, as a practical matter the FSC can decide whether the STR has a regulatory impact.

Reporting parties are required to send all STRs to the RA, pursuant to Section 28(2) of the PCCA and Paragraph 14(1)(f) of the AMLCP. The STR form is not prescribed by law, but Appendix F of the Guidance Notes suggests the use of a standard form of disclosure of suspicious activity to the RA. The STR form represents the minimum content for STRs although other forms with equivalent information may be substituted. The BVI does not have mandatory currency transaction reporting.

Guidance Notes for suspicious activity detection and reporting are the responsibility of the Joint Anti-Money Laundering Coordinating Committee (JAMLACC), which is comprised of private sector individuals representing both the industry and the public sector (including inter alia the heads of the FSC, RA and Customs). The chairman of the JAMLACC is the chairman of the RA. JAMLACC has issued the Guidance Notes, but is not very active. The Guidance Notes address the major indications and typologies of money laundering and suspicious transactions but do not purport to advise the reporting entities of the evolving typologies of suspicious or unusual transactions or provide alerts to the industry about known or suspected ML schemes. The Guidance Notes are in the process of being revised for terminology harmonization of wording into conformance with the AMLCP. These are expected to be completed by early 2003.

The RA has final approval over the Guidance Notes. In addition, the RA issues from time to time alerts on scams or attempted fraud schemes, without the need for formal authority to issue these. The AMLCP provides that the managing director of the FSC of may issue guidelines concerning the standards of compliance expected. (Paragraph 20 of AMLCP).

The current structure and operational mandate of the RA is somewhat uncertain. Because the RA is comprised of heads of other agencies, much of its power is derivative and the limits of the RA within this context are difficult to define. This has implications for understanding the scope of the resources needed, the extent of the mandate and budget implications. Additional structure, powers, and resources will enhance the RA’s reputation among FIUs and may increase cooperation with its foreign counterparts.

The AMLCP requires reporting entities to establish and maintain internal reporting procedures for recognizing and reporting suspicious transactions. Paragraph 14(1) of the AMLCP.

The RA and FSC advise that the RA and the Police FINU have the authority to request additional information and documentation from reporting parties needed in the analysis of financial transactions. The basis of the RA and Police FINU authority in this respect is grounded in the fact that STR reporting is voluntary and any information supporting or needed to support the report is also presumed to be voluntarily disclosed. The STR form requests that the quantity and quality of data delivered to the RA be sufficient to indicate the grounds for suspicion, indicate any suspected offense, and to enable the Investigating Officer to apply for a court order, as necessary. If the information was not submitted with the initial STR filing, then the RA will ask the reporting party for more information before it could even be considered a completed STR. The limits of the authority to request additional information under this mechanism have not been challenged in court to date.

In addition, the FSC has authority to request any information by written notice needed to ensure compliance with any financial services legislation, including the PCCA and AMLCP, which are specifically incorporated pursuant to Section 32 of the FSCA.

Authorities advise that on a practical level, this arrangement has sufficed for the Police FINU to obtain all necessary supplemental information without difficulty. The authorities do not see the need for a specific legislative or regulatory basis for requesting additional information in this regard. However, there is a degree of legal uncertainty of the scope of information available to the RA or the Police FINU under this arrangement, because the current requirement places the judgment of the sufficiency of the information provided on the reporting entity rather than on the receiving entity. Although there is a high level of cooperation at present, the current status is vulnerable to challenge if the reporting entity believes that the scope of the requests for additional information are beyond the topics of the STRs.

It is advisable that administrative authority to obtain additional information necessary to analyze be more concrete in legislation or regulation.

The RA is comprised of three persons, each of whom has a separate portfolio of mandates that includes direct access to a variety of databases. The managing director of the FSC has direct access to the commercial registry and FSC databases, the Senior Crown Counsel has direct access to the court records and Attorney General’s databases, and the head of the Police FINU has direct access to the police databases, including INTERPOL as well as domestic databases such as land registry and vehicles. Other databases, such as the Customs information is also available by request from the RA.

The RA has access to the Egmont Group encrypted database (ESW). There is an intelligence task force, the National Intelligence Committee, comprised of Customs, Immigration, Police and Drug officials that are charged with exchange of intelligence information.

Under the PCCA, filing of STRs is voluntary and filing protects the reporting entity from criminal liability for money laundering. Accordingly, there are no direct criminal sanctions for failure to comply with reporting obligations as there are no obligations in this regard. The impetus under this system is the potential for criminal prosecution for participation in a ML offense. Paragraph 18 of the AMLCP does impose sanctions for failure to establish procedures for recognizing and reporting suspicious transactions that include fines up to five thousand dollars for summary convictions and up to fifteen thousand dollars for convictions on indictment. Moreover, Paragraphs 88 through 90 of the Guidance Notes state that RO “should” file STR when the information substantiate a suspicion but this term in the Guidance Notes does not carry the same weight as “shall” in the law or regulations, and thus not read as mandatory by either the authorities or financial institutions. The FSC has not invoked enforcement measures to make this portion of the Guidance Notes mandatory. Moreover, implementation of the provisions in the Guidance Notes has not been fully implemented in the supervisory process. (See below, Table 2 Preventive Measures, Section V, Suspicious Transaction Reporting.)

The FSCA authorizes the FSC to take enforcement actions for contravention of the AMLCP, including revoking or suspending the license, appointing an examiner, issuing a directive to cease a class of business or not to enter into any new contracts for any class of business.

The direct gateway between the RA and domestic law enforcement authorities runs through the Head of the Police FINU, who is also a member of the RA. Section 28(7)(a) of the PCCA authorizes the RA to disseminate information received to any law enforcement agency in the territory. There should be some monitoring, record keeping, and statistics with regard to the information passed from the RA to the Police FINU that is transformed into an official investigation. There is also a need for certainty in the disposition of STRs.

Section 28(7) of the PCCA authorizes the RA to disclose any information received to any law enforcement agency in any other country in order to report the possible commission of an offense, to initiate a criminal investigation respecting the matter disclosed, to assist with any investigation or criminal proceedings respecting the matter disclosed, or to generally give effect to the provisions of the PCCA. Disclosures to foreign law enforcement authorities require the consent of the Attorney General prior to disclosure. The Attorney General may impose conditions on further disclosure.

The RA advises that disclosures to counterpart FIUs, pursuant to the Egmont Group Principles Information Sharing, do not require approval of the Attorney General. The RA has an MOU with the Belgian FIU to facilitate the exchange of information.

The RA does not keep official or formal statistics on STRs received, transmitted to the Police FINU or other domestic law enforcement authority, to foreign FIUs or law enforcement, or to analyze the resulting disposition of STRs. There are general statistics available on mutual legal assistance requests executed by the Police FINU and other authorities dating back to 1992.

The authorities provided general statistics on STRs received. In 1998, 18 were received; in 1999, 27 were received; in 2000, 26 were received; and in 2001, there were 62 received. In 2002, to date 45 have been received. The increase between 2000 and 2001 is notable, but because there are no statistics on the basis of the suspicious transaction reports, the reason for the increase in not known. These statistics do not indicate whether there has been corresponding increase in the cases developed for investigation.

A rough estimate by the authorities suggests that about ¼ of the STRs are relevant in relation to cases handled by foreign jurisdictions. As regards investigations initiated and conducted in the BVI, only a handful of STRs have been used. The number of received STRs is recorded, and all information is scanned and secured in data-files. However, the material is not subject to a qualitative analysis for statistical or strategic intelligence purposes. Since 1998 the RA has received about 180 reports.

The RA advises that they can retrieve statistics as necessary. The RA has a database on STRs from which it could be possible to construct necessary statistics. The RA does not provide statistics to the government for information or reporting purposes, although some information is submitted through an annual report to the executive council. Such lack of statistics makes it difficult to ascertain the operational effectiveness of the RA and Police FINU in processing STRs and analyzing financial intelligence. Without statistics, feedback to the reporting institutions is limited, whereas greater feedback may encourage and motivate more meaningful and targeted STR reporting.

As established under the PCCA the RA falls under the ministry of finance, but currently the RA is budgeted through the FSC. The relationship between the RA and the Police FINU lacks formal structure, particularly with respect to analysis of financial intelligence. Although the authorities advise that the structure has been effective, there is a need for more certainty, both for managing operations and for outside perception. Currently, the authorities believe that the structure has enabled the RA and Police FINU to fulfill their functions. Nevertheless, it is unclear what constitutes pre-investigative analysis of the STRs and how it becomes a matter warranting police investigation. Additional structure may help alleviate this uncertainty. Much of the operations are conducted on an ad hoc basis, so the underlying operations and work plan are not formalized and where weaknesses may be is difficult to determine.

The head of the Police FINU (and member of the RA) is an experienced financial crimes investigator who has conducted internal financial investigation training for the Police FINU. The RA authority advises that members of the Police FINU are undertaking formal training for financial crimes, both for basic understanding and advanced financial crimes detection that are available in the U.K. and in regional Caribbean programs. The Police FINU members also attend training from the Egmont Group, and formal training with C.A.L.P. and FinCEN. It is planned that future Police/Customs and tax officers will be trained as financial investigators and criminal analysts.

High on the list of priorities has been the integrity of the security of disclosures from STRs. The RA maintains a separate database, including a manual file of STRs. There is a secure back up record regularly made of information obtained through STRs. The electronic database contains scanned images of STRs and supporting documents. The database is indexed and checked against existing records. Additional information can be added to the file but the image of the STRs and supporting documents will remain unaltered. The database for STRs is secured and separated from the other operational databases of the Police FINU.

The RA should consider publishing an annual report of its activities, detailing the STRs received and disposition, although the mission was advised that an annual report is made to the executive council. As far as confidentiality is concerned, the FSC members are subject to an obligation of confidentiality under Article 49 of the FSCA. However, there is no specific provision governing confidentiality of the RA. The authorities advise that all persons, including the members of the RA and Police FINU are subject to the tipping off provision of the PCCA for unlawful disclosures.

The current structure of the RA makes it difficult to assess whether it comes under undue influence or pressure from the potential conflicts of interest among the members’ mandates. There are no internal rules or guidelines for the RA’s operations.

Analysis of Effectiveness

As a general matter, the RA is responsible for the receipt and processing of disclosures of suspicious financial transactions that are received in the form of STRs. The RA is a statutory body with limited primary powers, to receive STRs and to disseminate these to law enforcement both locally and abroad. Thus, the RA mainly derives its financial intelligence and investigative powers from its members, who are the managing director of the FSC, the Head of the Police FINU and a Senior Crown Counsel. It appears that the main financial intelligence analysis and subsequent investigations required are conducted on an integrated basis by the Police FINU.

The structure, while apparently working at present, is not formalized and the scope of the RA’s mandate is therefore somewhat unclear, particularly how the tasks and powers are divided between the RA and the Police FINU. Currently, the information contained in the STR can be made available to the police force of the BVI, or used for regulatory purposes, although the latter use is not specified in the PCCA. There are no specific procedures in place as to how decisions on the use of STR are to be made.

Suspicious transaction reporting is voluntary in the BVI, which may be the reason for the relatively low numbers of STRs filed for the size of the financial sector. The RA has no systematic contact with the reporting institutions, but they do attend a number of meetings and issue from time to time alerts on scams or attempted fraud schemes.

Recommendations and Comments

The lack of a clear distinction between the responsibilities and mandates of the RA and Police FINU may pose some problems as more STRs are generated. Although the blurring of functions might have its practical advantages, it could be argued that the present arrangement might interfere with principles of independence and professional secrecy. Furthermore, this lack of clearly defined tasks and powers makes the system vulnerable and heavily dependent on the integrity and ability of the individual members of the RA.

The absence of detailed statistics that are adequately broken-down makes it difficult for the authorities to derive information of either a more general nature or with more strategic value. Thereby the authorities lose a possibility for feedback to the reporting institutions, and they are also hampered with regard to identifying areas of concern and potential improvement in connection with the reporting system.

The BVI authorities have been satisfied with the implementation and effectiveness of the current system of identifying and reporting suspicious transactions, which is predicated primarily on the FSC using its supervisory powers to enforce the Guidance Notes. The system has been especially effective in introducing the identification and reporting system to the industry in an adequate manner. The number of reports—and information given on their use—might indicate that there is a need for a more stringent identification and reporting system established by statute and which can also be enforced by criminal authorities. A statutorily mandated system is generally regarded as an important measure for protecting the financial industry from being misused for money laundering purposes. Among necessary recommendations are:

The FIA should be established and made operational as soon as practicable; Clarify the division of tasks and powers between RA and the FIU to secure independence, integrity and confidentiality; Work out a data-based system for producing reliable and targeted statistics with regard to the contents and the follow-up of STRs; Further develop feedback routines and communication with the reporting institutions in order to identify trends and typologies and keep up motivation in the reporting institutions; Contemplate changes with respect to the status and staffing of the RA. The RA should have more clearly defined tasks and powers; Consider enacting a suspicious transaction reporting law; Consider enacting an obligation to provide additional material regarding a suspicious transaction report—both spontaneously and upon request—statutory or subject to explicit regulations; and The RA should be provided more authority and resources to increase its analytical function and to ensure that valuable financial intelligence received through STRs is properly analyzed, that supporting financial and law enforcement information can be obtained, and that the analysis conducted can be transmitted efficiently to law enforcement and regulatory authorities for maximum use.

The RA should consider publishing an annual report, which in addition to statistical information, provides information on typologies and trends, relevant for the industry subject to the anti-money laundering regime.

Implications for compliance with FATF Recommendations 14, 28, 32

The role of the RA in the BVI is structurally limited and does not appear to be of significant impact in promoting financial institutions to pay special attention to complex or unusual transactions, to increase reporting of STRs, or in providing comprehensive analysis of financial intelligence obtained from STRs. The structural weakness of the RA and its limited access to financial information and indirect access to law enforcement information limits the usefulness of its activities. Guidelines for reporting of STRs are provided at only the most basic level, and further information on evolving typologies is not regularly conducted. The FIU lacks a proper status within the institutional framework of the BVI, which the proposed restructuring to create the FIA may alleviate. Clearer and more formalized processes for sharing and use of financial intelligence submitted to the RA should follow as well, to encourage the widest possible cooperation both domestically and internationally.

International exchange of financial information possessed by the RA should be enhanced to achieve full compliance with FATF Recommendation 32. The RA should share (and should be authorized to do so) nonpublic financial information with counterpart FIUs, subject to international provisions on privacy and data protection as elaborated upon in the Egmont Group Principles of Information Exchange.

IV—Law enforcement and prosecution authorities, powers and duties (compliance with criteria 25-33)

Description

The Police FINU is responsible for investigating all financial crimes, including ML offenses disclosed through STRs. Reports of suspicions of FT are to be reported to the governor, who provides the information to the AGC for action.

The number of requests received from abroad and the limited resources and structure of the Police FINU have fostered a reactive approach to investigations. It is impractical to expect the Police FINU as currently staffed to initiate separate investigations when investigations are taking place abroad already. The focus has therefore been on providing investigative materials for investigations and prosecutions abroad. When the authorities receive requests for an investigation in the BVI, there appears to be sufficient attention given and effective delivery of necessary investigative materials, which suggests that the matters presented are properly investigated. The authorities advise that they received 791 requests dealing with IBCs intelligence in 2001.

The Magistrates’ Code of Procedure, Article 22 provides for a wide range of orders for search, seizure, and interrogation of witnesses. There are provisions for wire tapping under both the Telephone Act and the Telecommunications Act. Authorities advise that controlled delivery is authorized under the Drug (Prevention and Misuse) Act.

To exercise authority needed for this array of investigative tools, there needs to be close cooperation of the Police FINU, RA, and other police and law enforcement officials, both domestically and abroad.

The proposed FIA should have clear procedures for exchange of information to enable the widest possible use of the investigative techniques necessary for prevention and detection of ML and FT offenses.

Section 36 of the PCCA authorizes the Police to obtain orders for the production of information if there are reasonable grounds to suspect that these are relevant to investigating the proceeds of criminal conduct.

The authorities have established a task force for intelligence that includes Customs, Police, Immigration, and the Drug Unit.

Once the FIA is constituted it should be an official member of any task force formed and should have access to all information available to the task force.

Currently, to fulfill their objective of providing efficient and effective investigative support for investigations and prosecutions abroad, the Police FINU and AGC appear to be adequately staffed and funded. Nevertheless, authorities recognize that additional staff and funds are needed, as evidenced by the budget already allocated for the new FIA. Once the FIA is established, authorities should review whether the resources and staffing are sufficient to fulfill the mandate of the FIA.

Statistics are available in some forms, although there is no program for regularly and formally updating the statistics on law enforcement activities. As stated in criteria 23, 25, and 35, there are statistics for the FIU. Statistics for mutual legal assistance are available from the AGC. There is a need for integrated and comprehensive statistics for all aspects of law enforcement investigation and prosecution. It would be advisable for the RA to maintain integrated statistics throughout the process beginning with STR filings and through the ultimate disposition of cases.

Within the domestic law enforcement community, there appears to be an adequate understanding and dissemination of typologies information.

Members of the Police FINU have regularly attended training programs on ML. It is planned that future Police/Customs and tax officers will be trained as financial investigators and criminal analysts. Appropriate training will be made available for other employees in computers and criminal analysis. A budget will be set to allow personnel to attend conferences and training to update the skills in their field of expertise.

Authorities are reviewing the legal framework to enhance necessary investigative tools. AGC advises that all laws concerning financial crimes are being reviewed under a regular rotation. There should be a corresponding review of the operational limits of the current structure. Attention should be paid to problems encountered under the current structure in establishing the operational framework of the FIA. Authorities should monitor the initial operations of the FIA closely to identify further refinements, which are needed on an operational basis.

Analysis of Effectiveness

As a general matter, the Police FINU are responsible for investigating all financial crimes, including money-laundering offenses. Reports on the financing of terrorism are to be reported to the governor, who provides the information to the AGC for action. The AGC is vested with prosecutorial responsibility and for providing mutual legal assistance from formal international requests and MLATs.

Because of the BVI’s unique role in international business, the Police FINU spend considerable time in executing mutual legal assistance. As a consequence, domestically initiated investigations are few. Doubtlessly, the AGC and the Police FINU are well capable of conducting money laundering investigations, but resources are scarce and the number of domestic cases is very limited. The number of staff clearly puts limitations on the possibility of undertaking in-depth investigations both in relation to domestic and international cases. While the investigative powers available seem generally adequate, they could be extended. The authorities are currently reviewing the legal framework with an eye to enhance investigative powers so as to expand the scope and effectiveness of investigative tools.

Some statistics on law enforcement activities in this area is available, but they are not comprehensive. Some statistics on seizures are developed by the Police FINU for internal purposes. According to information provided by the authorities, BVI has assisted foreign authorities in the freezing of substantial values over the last decade.

The substantial number of requests for MLA strongly indicates that the present staffing of the FIU is not sufficient to take on a more pro-active approach with regard to ML/FT cases. The nature of these crimes is concealed/hidden, and sufficient and qualified manpower, as well appropriate technical means, are crucial in order to successfully reveal, investigate and prosecute cases.

Recommendations and Comments

The BVI authorities advise that a decision has been taken by the executive council to establish the FIA, which will have responsibility for the investigative and administrative aspects of financial intelligence. A bill is being drafted. Although the mission did not have access to any specific information on the structure and status of the FIA, the authorities advise that there is already provisioning in the 2003 budget for the FIA.

The authorities have taken positive steps in proposing the formation of the FIA, which is expected to be a separate agency staffed from members seconded from the Police FINU, Customs, Tax, and Civil Service and the AGC. The FIA is expected to be subordinated to the RA and the expectation is to add eleven staff members to the FIA, in addition to the three current staff members of the Police FINU. As part of the FIA, there will be a need for some ad hoc powers to bring in expertise as necessary for deeper investigations such as forensic accounting. The proposal envisages that FIA will be independently funded and internally controlled but with a steering committee from the parent agencies and the governor’s office. It is expected that the FIA will have the powers of the Police and Customs and other powers as may be necessary. These powers should be expressly delineated in the enabling legislation forming the FIA. Although the proposed FIA will be a hybrid of financial intelligence analysis and investigative functions, there should be clear procedures for distinguishing the financial intelligence analysis and the transformation of the intelligence into investigative evidence that is admissible in court proceedings. The Steering Committee should be given responsibility for ensuring that such necessary controls are implemented and maintained.

At minimum, the FIA’s internal procedures should have provisions to reduce potential conflicts of interest among the various bodies. An important dimension is the autonomy and integrity of the new unit. The relationship between the RA and the FIA must be clearly regulated, taking into account their partially different tasks and the need for limiting access to certain types of agency-specific information. Professional secrecy issues must be comprehensively addressed. Emphasis should also be put on clearly defining the authority of the body responsible for the deployment of FIA resources.

Targeted statistics related to law enforcement activities, including the freezing, seizing, and confiscation of the proceeds of crime, should be developed.

Implications for compliance with the FATF Recommendation 37

For the purposes of FATF Recommendation 37, the provision of mutual assistance, including in criminal matters, is adequately addressed in the CJIC and the FSIC. However, execution of compulsory measures arising from mutual legal assistance requests is inconsistent in practice. The procedures for invoking and executing the CJIC and FSIC provisions should be made clearer and formalized to allow for effective use of law enforcement measures in response to foreign requests.

V—International Co-operation (compliance with criteria 34-42)

Description

The Criminal Justice International Cooperation Act (CJIC) is the major legislative basis for the range of mutual legal assistance in AML/CFT matters. Sections 5, 6, and 7 of the CJIC authorize providing evidence, including seizure of records, search of premises and seizure of evidence, and enforcement of foreign forfeiture orders. In addition, Sections 4 and 5 of the Financial Services (International Cooperation) Act, 2000 (FSIC), allow for the sharing of records in the possession of the FSC with foreign authorities. The PCCA provides specifically for the enforcement of external confiscation orders for ML. The provision of mutual legal assistance is only limited insofar as the BVI requires dual criminality for the provision of evidence and records.

The AGC advises that amendments to the CJIC are contemplated to widen assistance delivered or sought, and to authorize police to interrogate witnesses directly under a mutual legal assistance request whereas currently, interrogation of witnesses under the CJIC may only be carried out by a court order.

In addition to mutual legal assistance in criminal matters, the Evidence (Proceedings in Foreign Jurisdictions), Act 1988 authorizes provision for assistance in civil matters, including examination of witnesses, production of documents, inspection, photographing, preservation or detention of property, or the medical examination of any person.

See also, discussion in criterion 22 regarding sharing of information by the RA.

Provision of mutual legal assistance is generally effective, efficient and timely. The BVI authorities appear well equipped for responding to a high level of requests that require exercising a number of investigative techniques. It should be noted that resources are likely to be strained if the number of requests continues to increase. The BVI authorities play a significant role in assisting other jurisdictions’ investigations. Mutual legal assistance requests have tripled in the last seven years, and this has spurred the authorities to begin a review of the entire process for providing mutual legal assistance. To date, the BVI authorities generally do not request assistance from other jurisdictions, rather focusing on the delivery of assistance.

In the exercise of mutual legal assistance on behalf of the United States, based on the Mutual Legal Assistance (United States) Act of 1990, there is a confidentiality provision that prohibits a person subject to an order from disclosing the particulars of the request to any person for a period of ninety days from the date of receipt of the request.

Since 1992, authorities have compiled statistics on mutual legal assistance requests that are broken down by type of action necessary, entities involved, and other features. These statistics demonstrate an increasing number of enquiries. The increase supports the perception of the high level of cooperation of the BVI in the international community in providing mutual legal assistance.

BVI has a mutual legal assistance treaty with the United States. The FSC and AGC advise that mutual legal assistance may be provided directly under the CJIC and the FSIC without the need for treaties or agreements and any agreements entered into cannot exceed the scope of assistance contemplated by the CJIC. The mutual legal assistance laws and agreements are supplemented by the sharing of financial intelligence through the Egmont Group and participation in INTERPOL.

In addition to the gateway through INTERPOL, the Police FINU advise that there are gateways for the exchange of information directly with other police units, and that foreign law enforcement may make requests directly to the Police FINU. The Police FINU advise that there are no legal impediments to the direct sharing of information with foreign police. It is unclear whether exchange of information on a police-to-police basis encompasses full dissemination of case specific information or whether the transmittal of actual evidence requires a more formal mechanism.

It does not appear that statistics on direct exchange of information between law enforcement authorities is maintained. However, the usefulness of compiling such statistics is marginal, as many such contacts are informal and will be supplemented with more formal requests either through INTERPOL or mutual legal assistance at the stage when transmittal of usable evidence is needed.

Cooperative investigations are encouraged and supported. BVI law enforcement bodies are primarily focused on ensuring that all necessary cooperative measures are in place. Authorities advise that controlled delivery is authorized and undertaken. Authorities regularly coordinate cooperative investigations with the United States Customs authorities.

Extradition is permitted for individuals charged with crimes punishable by imprisonment of over twelve months. Extradition is specifically provided for in the Extradition Treaty (US/UK) of 1977 as amended by Supplemental Treaty of 1985, the Fugitive Offenders (Virgin Islands) Order of 1967, Extraditions Act of 1989 (UK) and the Extradition (Overseas Territory) Order of 2002. The AGC advises that extradition of nationals is permissible.

In addition to extradition, persons connected with terrorism may be denied entry to the BVI, be deported, or be detained pending deportation. There is also provision to declare persons undesirable by placing names on a stop list at the ports of entries. Recently, the National Intelligence Committee (2001) was formed to enhance law enforcement and networking with other countries to target terrorists and other criminals.

Analysis of Effectiveness

International cooperation and provision of mutual legal assistance is highly effective in the BVI. The CJIC and the FSIC allow for broad exchanges of information, both for investigations and prosecutions and for regulatory matters. The BVI legislation requires dual criminality for the provision of evidence and records. The PCCA specifically provides for the enforcement of external confiscation orders for money laundering. Amendments to the CJIC are contemplated, in order to widen the scope of assistance and to authorize the police to interrogate witnesses directly under a mutual legal assistance request.

There are a substantial number of requests for assistance from foreign counterparts, as reflected in the available statistics. The statistics only give information on the number of requests in different categories, and do not highlight the efforts put into their execution. Many of the requests are handled by the police themselves (company enquiries and checks). Work connected to requests for assistance takes up the major part of the capacity of the Police FINU. The Head and the staff of the unit, as well as the AGC, seem very competent in this field and have accumulated considerable experience.

The authorities of BVI should be commended for the efforts put into international law enforcement cooperation.

The general impression is that requests for assistance are executed in a professional and timely manner. There is perhaps some strain on the limited number of staff to thoroughly follow up all requests in the desired detail. The importance of BVI as a financial centre strongly suggests that the number of requests for mutual assistance in criminal matters will remain at a high level. As money laundering operations often will involve several jurisdictions, the role of the BVI must be considered to be of great significance in the global efforts to fight money laundering and the financing of terrorism.

Recommendations and Comments

Further develop statistics in the area of international cooperation, including freezing, seizing, and confiscation of assets.

The contemplated changes to the CJIC and the establishment of the FIA would further enhance the ability of expediently executing requests for assistance.

Implications for compliance with FATF Recommendations 3, 32, 33, 34, 37, 38, 40, SR I, SR V

The legal provisions for mutual legal assistance in the CJIC and FSIC are sufficient to permit a wide range of mutual legal assistance for compliance with FATF Recommendations 3, 33, 37, 38 and 40 and the processes for effectuating mutual legal assistance appears to function well. Additional authority is required to achieve compliance with FATF 32 that ensures that there is substantive and effective exchange of information concerning suspicious transactions. Because most of the information on ML and FT discovered in the BVI relates to activities and investigations in the United States, the bilateral agreement between the two suffices to cover a large portion of the requests received in the BVI. Nevertheless, additional bilateral agreements should be considered to strengthen compliance with FATF 34. Additional legal provisions are necessary to ensure that the broadest possible scope of legal assistance can be offered in compliance with FATF Special Recommendation V.

View Table

Table 5.

Detailed Assessment of Criminal Justice Measures and International Cooperation

I—Criminalization of ML and FT (compliance with criteria 1–6)

Description

BVI criminal provisions for ML and FT are contained in a number of separate legislative instruments, including the PCCA, the Drug Trafficking Offenses Act (DTOA), 1992, and the two statutory instruments issued by the United Kingdom and applicable to overseas territories. These provisions have differing scopes and coverage.

With respect to multilateral conventions and responses to United Nations Resolutions, the BVI is dependent on the United Kingdom. Accordingly, the BVI is not separately a party to any multilateral or bilateral conventions on money laundering because as an overseas territory the United Kingdom is the appropriate signatory on behalf of the BVI. Nevertheless, money laundering is criminalized in the BVI in accordance with the Vienna and Palermo Conventions. The BVI has not requested the U.K. to extend the Palermo Convention to the territory as yet because of issues surrounding provisions on wire tapping and surveillance. The Attorney General’s Chamber advises that currently the Telecommunications Act (Cap. 171) and the Wireless Telegraphy Act, 1949 of the U.K. provide legal mechanisms for wire tapping but then authorization is placed in two different functionaries, namely the Governor in Council and the Governor, respectively. The objective is to consolidate the law on the subject with a single functionary performing the task of authorizing wire tapping and ensuring that there are adequate checks and balances to safeguard individual rights. Upon such consolidation, the BVI then may request that the U.K. extend the Palermo Convention.

Two statutory instruments, No. 3366 in 2001, The Terrorism (United Nations Measures) (Overseas Territories) Order, and No. 1822 in 2002, the Anti-Terrorism (Financial and Other Measure) Overseas Territories) Order that apply to the overseas territories was passed by the U.K. As a result of these two instruments, the BVI is now in full compliance with the 1999 United Nations Convention for the Suppression of the Financing of Terrorism.

There was a decision of the executive council on November 6, 2002 to officially ask the U.K. to extend the 1999 Convention to the BVI.

The United Kingdom also responds to the UNSCRs on behalf of the BVI. Statutory Instrument 3366 authorizes the Governor of the BVI to issue orders necessary to implement the FT lists contained in the UNSCRs. The BVI’s response to the questions posed in UNSCR 1373 was completed as part of the U.K.’s response.

Money laundering is criminalized in Sections 28 through 30 of the PCCA on the basis of the Palermo Convention. Section 28 criminalizes enlisting another to retain the benefit of criminal conduct. Section 29 criminalizes acquisition, possession or use of proceeds of criminal conduct. Section 30 criminalizes concealing or transferring proceeds of criminal conduct. In addition, Section 31 criminalizes tipping off about the existence of a suspicious transaction report to the Reporting Authority or a money laundering investigation. Predicate offenses for Sections 28 through 30 of the PCCA extend to all serious offenses, meaning indictable offenses, which would be triable at the High Court before a jury. Generally, indictable offenses are subject to three years imprisonment at minimum, as advised by the AGC (Section 2(5)(d) of the PCCA).

The PCCA predicate offenses do not, however, include drug offenses. Prior to enactment of the PCCA, money laundering was criminalized on the basis of the Vienna Convention in the Drug Trafficking Offenses Act, 1992 (DTOA), which captured proceeds of drug trafficking. Section 23B criminalizes concealing or transferring property representing the proceeds of drug trafficking. In both the PCCA and the DTOA, the predicate offense need not have occurred in the BVI so long as the offense constituted a predicate offense within the territory. (Section 2(1) PCCA and Section 2(1) DTOA).

The AGC advises that the PCCA extends to persons who have committed money laundering as well as both money laundering and the predicate offense, and it is not necessary that a person be convicted of a predicate offense to establish that the proceeds originate from a predicate offense in order to prosecute for money laundering.

The “proceeds of criminal conduct” are defined broadly in the PCCA and represent any property, benefit, or pecuniary advantage derived. Section 2(1) and 2(5) PCCA. Further, the offense of acquisition, possession, or use of proceeds of criminal conduct in Section 29 applies to property that directly or indirectly represents the proceeds of crime.

FT has been criminalized through two statutory instruments passed by the U.K. that are applicable to the overseas territories, including the BVI. Statutory Instrument 2002 No. 1822 criminalizes:

Fundraising for terrorism (Section 6); Use and possession of money or other property that is known or there is a reasonable cause to suspect that it will be used for terrorism (Section 7); Entering into funding arrangements through which it is known or there is reasonable cause to suspect that the funds will be used for terrorism (Section 8); Money laundering by becoming involved in an arrangement which facilitates the retention or control of terrorist property by concealment, removal from the jurisdiction, transfer to nominees, or otherwise (Section 9); and Failing to disclose to a constable a belief or suspicion of a terrorist financing offense in Sections 6 through 9.

Statutory Instrument 2001 No. 3366 criminalizes:

Collection of funds for the purposes of terrorism (Section 3); and Making funds available directly or indirectly to the benefit of a person who commits, attempts to commit, facilitates or participates in the commission of acts of terrorism. (Section 4).

Section 4 of Statutory Instrument 1822 and Section 3 of Statutory Instrument 3366 specify that actions criminalized for FT include actions occurring outside the territory.

The offenses of ML and FT apply to all persons, including legal entities under the PCCA and Section 1(5) of Statutory Order No. 3366. However, the FT offenses in Statutory Order 1822 are not specifically extended to legal entities.

The intentional element of the ML offenses is satisfied if the defendant knows or suspects that the money, property or assets represents the proceeds of criminal conduct. The AGC advises that the intentional element may be discerned under a “should have known” standard by inferring knowledge from objective factual circumstances.

The criminal offenses for ML in PCCA Sections 28 through 31 carry penalties of imprisonment for a term not exceeding six months or to a fine not exceeding US$3,000 for a summary conviction. Conviction on these offenses on indictment carry penalties of imprisonment for a term not exceeding 14 years and a fine not exceeding US$20,000. (Sections 28(8), 29(11), 30(4) of the PCCA). Similar provisions are contained in the DTOA. Specifically, Section 23B imposes imprisonment of not more than six months or a fine of up to US$10,000 for summary conviction and imprisonment of up to 14 years or a fine of up to US$50,000 for a conviction upon indictment.

For FT offenses under Statutory Instrument No. 1822, conviction on indictment carry a penalty of imprisonment not exceeding five years, to a fine, and for summary conviction to imprisonment of up to six months and a fine, up to a statutory maximum. FT offenses under Statutory Instrument 3366 imposes imprisonment for a term not exceeding seven years or a fine for conviction upon indictment and imprisonment up to six months or a fine up to £5,000 (about US$7,890) for a summary conviction.

There appear to be effective legal means to carry out criminal prosecutions. The tools are being implemented in a manner to give emphasis to the BVI’s role as a provider of effective evidentiary materials for investigations and prosecutions abroad. As a result, the criminal provisions for ML and FT are not widely used within the BVI.

Efforts are underway to enhance resources for criminal investigations and prosecutions. A commercial crimes unit has been formed within the AGC to focus on economic crimes, including ML. There is a Police FINU, which is the white collar crime unit for investigations of economic crimes and ML. There is a proposal to have a separate statutory Financial Investigative Agency. See criterion 24, below for additional details.

Analysis of Effectiveness

The BVI criminal provisions are generally compliant with international standards, and consistent with the Vienna and Palermo Conventions. FT is criminalized consistent with the International Convention for the Suppression of the Financing of Terrorism. The criminal provisions for ML are not extensively used for prosecution because most investigative evidence developed for ML is provided for foreign prosecutions, where frequently the cases are stronger and there are more resources to conduct complex investigations and prosecutions. Nevertheless, the criminal provisions could be put to greater use to open criminal cases within the BVI. Acting primarily as reactive provider of information for foreign prosecutors may not always allow for the best use of information developed. Opening more criminal files and beginning preliminary investigations will both increase the use of the BVI criminal provisions and will allow for more meaningful development of investigative evidence for use in foreign prosecutions as well.

Recommendations and Comments

As written, the legal provisions for ML and FT appear to be adequate but these have not been effectively tested in criminal investigations and prosecutions. Further efforts should be made to increase prosecutions for ML and FT where the evidence exists to support domestic prosecutions.

Implications for compliance with FATF Recommendations 1, 4, 5, SR I, SR II

The BVI legal provisions for ML are largely compliant with the requirements for FATF Recommendations 4 and 5. The FT offenses in the two Statutory Instruments, as written, comply with the requirements for SR II.

II—Confiscation of proceeds of crime or property used to finance terrorism (compliance with criteria 7–16)

Description

Confiscation provisions in the PCCA are directed primarily to recovering a sum of money that represents the benefit derived from the ML offense rather than to confiscation of the property laundered, proceeds from, instrumentalities used in or intended for use in the commission of any ML offense, although the value of the property laundered is used to determine the benefit to the defendant of the offense. The DTOA contains specific provisions for the confiscation of instrumentalities of ML associated with drug crimes but the PCCA forfeiture provisions do not contain similar language. Nevertheless, the AGC asserts that the inherent power of the courts allows for such confiscation, although actual cases of confiscation of property laundered or instrumentalities of non drug offense related ML have not been cited.

Sections 6 and 12 of the PCCA provide for confiscation of a sum of money determined by the court upon conviction for a money laundering offense. The amount confiscated represents the benefit derived from the ML offense by the defendant. Similar provisions are in the DTOA, Section 5. The PCCA confiscation provisions extend to the value of the property laundered but not to the instrumentalities used in or intended to be used to commit a ML offense or predicate crime. Forfeiture of cash is contained in the DTOA Section 35 for cash from drug offenses. Forfeiture of other property connected to the commission of an offense may be subject to the forfeiture provisions in Section 26 of the Criminal Code, if the property relates to specific offenses enumerated in the provision, specifically Sections 79, 80, 81, or 101 of the Criminal Code. Conviction for offenses under the Drugs (Prevention of Misuse) Act, (Cap. 178), authorizes forfeiture of all drugs and any instrumentalities associated with the offense. The PCCA does not contain a specific provision for forfeiture or assets laundered or instrumentalities of ML, although enforcement of confiscation orders under the PCCA may be effectuated against any realizable property that includes assets laundered. Accordingly, while there is no direct confiscation of assets laundered under Section 6 of the PCCA, effectively these can be confiscated in lieu of the confiscation payment.

The PCCA provides for provisional measures for the freezing/seizing of property that is or may become the subject of confiscation. (Sections 16, 17 & 18 of the PCCA). The application to freeze or seize property is made on an ex parte basis to a judge in chambers by a prosecutor, subject to giving notice to persons affected by the order (Sections 17(4) and 18(2) of the PCCA.)

There is no provision in the PCCA for the confiscation of property of organizations that are found to be primarily criminal in nature, although Statutory Instrument 3366 authorizes the governor to freeze funds associated with terrorism and the financing of terrorism. Nevertheless, the AGC advises that Section 4 of the Public Order Act (Cap. 63) proscribes quasi-military organizations (whether corporate or incorporate) and empowers the High Court, upon an application by the Attorney General to direct an inquiry to be held and dispose of property of any such organization as the court deems fit, including forfeiting such property to the Crown. Section 16 of Statutory Instrument 1822 authorizes the forfeiture of terrorist cash, including cash that is intended to be used for the purposes of terrorism or is or represents property obtained through terrorism.

The AGC advises that property of equivalent value may be forfeited in the event that property subject to forfeiture is not available.

The AGC advises that civil forfeiture is contemplated under general common law principles and is an available tool upon application to the High Court.

The PCCA Section 36 authorizes a police officer to apply to the High Court for production orders for materials needed to investigate a ML offense. The AGC, advises that the scope of this provision is sufficiently wide to encompass orders to trace and identify property that may become subject to confiscation, even if these are not specifically listed in the production orders.

In addition, orders for tracing and identification of property are authorized by the PCCA Section 6(1) that requires the court to first determine whether the offender has benefited from any relevant criminal conduct, prior to ordering confiscation. To carry out this obligation, the court has wide authority to trace the proceeds of crime. In addition, there are general powers of a Magistrate to investigate all charges which he is not empowered to try summarily. (Section 22(c) MCP). On an administrative level, section 30(1) of the FSCA authorizes the Board of the FSC to request a person connected to a financial services business to provide the FSC with such information as the Board may specify. Similarly, section 32 of the FSCA authorizes the FSC to request information or the production of documents by issuing a notice. Moreover, in relation to or with respect to the commission of an offense under financial services legislation, section 32 of the FSCA authorizes the FSC to apply for a search warrant in order to discover material that may be removed, tampered with or destroyed or used in the commission of an offense. Thus, the AGC advises that these provisions, in addition to the FSC’s authority to appoint examiners to conduct investigations on its behalf in relation to an enforcement action under Section 37 of the FSCA, have the cumulative effect of imbuing the FSC with statutory powers to trace and identify assets of a regulated person or other person thereto through well-established enforcement mechanisms. Nevertheless, specific administrative authority to identify and freeze assets for a short period would be helpful.

Section 4(3) of the PCCA specifically allows for voiding of gifts made by defendants convicted of a ML offense. In addition, the AGC advises that other orders to void contracts may be sought through application to the courts under the freezing and seizing provisional measures in Section 17(4) and 18(2) of the PCCA.

With respect to freezing and blocking of assets or funds associated with FT, section 5 of Statutory Order 3366 authorizes the governor to freeze funds where there is reasonable grounds to suspect that the funds are for, or being held on behalf of, a person who commits, attempts to commit, facilitates, or participates in acts of terrorism or a person controlled by a suspected terrorist.

The authorities have not compiled statistics on frozen funds, although the Attorney General advises that no funds have been frozen as a result of the UNSCRs.

See criterion 13. The governor’s authority to freeze funds is not limited to lists provided by the U.N. under Section 5 of Statutory Order 3366.

With respect to confiscation, Section 4(3) of the PCCA requires the court to consider transfers of property by the defendant either in the form of outright gifts or where the consideration rendered is significantly less than the property transferred. In the latter case, the court must consider the rights of any bona fide or innocent third party recipient by taking into account the value of the consideration rendered by the third party. In addition, Section 3(5) concerning what seized property can be sold or realized requires a consideration of the effect of sale on the value of any beneficial interest in the property held by a bona fide third party. Further, Statutory Instrument 1822 Section 5(7) allows a recipient of an order that freezes funds associated with terrorism to apply to the governor for an order setting aside the freezing.

With respect to the assertion of rights of bona fide third parties, the AGC advises that the party must make an affirmative application to the court by seeking a civil order to assert rights over the property forfeited or confiscated. The burden of proof falls on the applicant party.

As a general principle, the AGC advises that confiscated assets and forfeited property are divided among the jurisdictions involved. Compensation of innocent third party victims is also provided for.

BVI has asset sharing arrangements with the United States and is in the process of negotiating an arrangement with Canada through the Foreign and Commonwealth Office. As a general rule, the BVI shares confiscated and forfeited assets with other jurisdictions which have an interest in the property and criminal proceedings have been or will be initiated in the other jurisdiction. Assets confiscated or forfeited under mutual legal assistance requests are transmitted directly to the requesting jurisdiction.

Analysis of Effectiveness

Confiscation for proceeds of criminal conduct, including direct and indirect benefit derived from money laundering and provisional measures for freezing of assets are adequate. However, the forfeiture provisions applying to property laundered and instrumentalities of ML are not clearly defined in the law outside of the context of narcotics and a short list of relevant crimes. Nevertheless, the AGC advises that the courts have inherent power to forfeit instrumentalities to the Crown or in any manner considered fit and that the absence of specific forfeiture provisions in the PCCA does not mean that the laundered property cannot be the subject of forfeiture. The AGC further asserts that the PCCA regime authorizes the prosecutor to apply for a confiscation order in relation to laundered property connected to an offense that has been established. However, under Sections 15 through 20 of the PCCA, it appears that such authority applies to the property laundered or instrumentalities of ML only when these are being sought to enforce confiscation orders when the defendant fails to pay rather than to permitting direct forfeiture of proceeds laundered or instrumentalities of ML directly. It is not clear under what circumstances confiscation orders have been enforced against property or assets laundered under the PCCA authority.

There are specific provisions for the freezing, restraint and forfeiture of assets used to finance terrorism or intended to be used to support terrorist activities.

Authorities do not formally keep statistics, although they assert that the information is readily known. However, it would be beneficial to have formal, meaningful, and reliable statistics that will help them evaluate their resource and staffing needs, understand where to deploy their limited resources and enhance their reputation for effective confiscation controls in the world community.

Training regarding confiscation is addressed under general investigative trainings attended. There is an apparent lack of staff in the Legal and Enforcement section of the FSC to carry out the necessary control functions may require additional training when staffing is completed.

Recommendations and Comments

The PCCA or other legislation should provide for a specific forfeiture provision that allows for forfeiture of all property laundered and instrumentalities associated with a ML offense.

Additional authority should be provided to administrative bodies to identify and trace assets suspected of being ML or FT related.

Confiscation provisions in the PCCA and DTOA appear to have been put to limited use and as a result the level of assets seized and confiscated is not readily available. Systems for executing the confiscation authority and managing the disposition of confiscated assets are not fully developed in the BVI.

Comprehensive statistics on freezing, seizure, and confiscation should be compiled and maintained, including information on the types and amount of property frozen, seized and confiscated and information concerning the ML offense or predicate offense.

Implications for compliance with FATF Recommendations 7, 38, SR III

BVI’s legal provisions for confiscation are largely compliant with the minimum requirements of FATF Recommendation 7 and SR III insofar the range of legal measures allow for confiscation upon conviction of the benefit of ML, and there are some provisions for instrumentalities as well as the possibility of in rem action for property laundered. Nevertheless, BVI’s legal provisions for freezing, seizure, and confiscation of assets are limited on their face and, in practice, may not be sufficient to cover property laundered or instrumentalities of ML, except for those related to a limited list of predicate crimes. Additional authority for provisional measures and confiscation are needed to address the property laundered or instrumentalities used for ML and FT to achieve full compliance with FATF 7 and 38. In addition, the measures in place must be used to maximum effect to inhibit the movement of proceeds of crime, property laundered and instrumentalities of crime.

III—The FIU and processes for receiving, analyzing, and disseminating financial information and other intelligence at the domestic and international levels (compliance with criteria 17-24)

Description

The Reporting Authority (RA) is the financial intelligence unit in the BVI, which was established under Section 27 of the PCCA and was constituted by the Reporting Authority (Constitution & Procedure) Order, 1998. The RA is comprised of the managing director of the FSC, who is also the head of the RA, the Head of the Police FINU, and a Senior Crown Counsel from the Attorney General’s Chamber. The Deputy managing director of the FSC is the Secretary of the RA. The Reporting Authority has been a member of the Egmont Group since 1999.

The RA is empowered to receive and disseminate STRs. The RA is also the conduit for exchange of information with counterpart FIUs abroad. As a matter of practice, STRs are distributed to all members of the RA. If needed, a meeting or consultation among the RA members will be convened. On a practical level, the head of the Police FINU frequently conducts the preliminary analysis for the RA and determines whether additional police investigative resources should be devoted. If the STR raises regulatory issues, in the view of the RA, the information may be disclosed to the FSC to be used for regulatory purposes. As both the managing director and the deputy managing director of the FSC participate in the RA, as a practical matter the FSC can decide whether the STR has a regulatory impact.

Reporting parties are required to send all STRs to the RA, pursuant to Section 28(2) of the PCCA and Paragraph 14(1)(f) of the AMLCP. The STR form is not prescribed by law, but Appendix F of the Guidance Notes suggests the use of a standard form of disclosure of suspicious activity to the RA. The STR form represents the minimum content for STRs although other forms with equivalent information may be substituted. The BVI does not have mandatory currency transaction reporting.

Guidance Notes for suspicious activity detection and reporting are the responsibility of the Joint Anti-Money Laundering Coordinating Committee (JAMLACC), which is comprised of private sector individuals representing both the industry and the public sector (including inter alia the heads of the FSC, RA and Customs). The chairman of the JAMLACC is the chairman of the RA. JAMLACC has issued the Guidance Notes, but is not very active. The Guidance Notes address the major indications and typologies of money laundering and suspicious transactions but do not purport to advise the reporting entities of the evolving typologies of suspicious or unusual transactions or provide alerts to the industry about known or suspected ML schemes. The Guidance Notes are in the process of being revised for terminology harmonization of wording into conformance with the AMLCP. These are expected to be completed by early 2003.

The RA has final approval over the Guidance Notes. In addition, the RA issues from time to time alerts on scams or attempted fraud schemes, without the need for formal authority to issue these. The AMLCP provides that the managing director of the FSC of may issue guidelines concerning the standards of compliance expected. (Paragraph 20 of AMLCP).

The current structure and operational mandate of the RA is somewhat uncertain. Because the RA is comprised of heads of other agencies, much of its power is derivative and the limits of the RA within this context are difficult to define. This has implications for understanding the scope of the resources needed, the extent of the mandate and budget implications. Additional structure, powers, and resources will enhance the RA’s reputation among FIUs and may increase cooperation with its foreign counterparts.

The AMLCP requires reporting entities to establish and maintain internal reporting procedures for recognizing and reporting suspicious transactions. Paragraph 14(1) of the AMLCP.

The RA and FSC advise that the RA and the Police FINU have the authority to request additional information and documentation from reporting parties needed in the analysis of financial transactions. The basis of the RA and Police FINU authority in this respect is grounded in the fact that STR reporting is voluntary and any information supporting or needed to support the report is also presumed to be voluntarily disclosed. The STR form requests that the quantity and quality of data delivered to the RA be sufficient to indicate the grounds for suspicion, indicate any suspected offense, and to enable the Investigating Officer to apply for a court order, as necessary. If the information was not submitted with the initial STR filing, then the RA will ask the reporting party for more information before it could even be considered a completed STR. The limits of the authority to request additional information under this mechanism have not been challenged in court to date.

In addition, the FSC has authority to request any information by written notice needed to ensure compliance with any financial services legislation, including the PCCA and AMLCP, which are specifically incorporated pursuant to Section 32 of the FSCA.

Authorities advise that on a practical level, this arrangement has sufficed for the Police FINU to obtain all necessary supplemental information without difficulty. The authorities do not see the need for a specific legislative or regulatory basis for requesting additional information in this regard. However, there is a degree of legal uncertainty of the scope of information available to the RA or the Police FINU under this arrangement, because the current requirement places the judgment of the sufficiency of the information provided on the reporting entity rather than on the receiving entity. Although there is a high level of cooperation at present, the current status is vulnerable to challenge if the reporting entity believes that the scope of the requests for additional information are beyond the topics of the STRs.

It is advisable that administrative authority to obtain additional information necessary to analyze be more concrete in legislation or regulation.

The RA is comprised of three persons, each of whom has a separate portfolio of mandates that includes direct access to a variety of databases. The managing director of the FSC has direct access to the commercial registry and FSC databases, the Senior Crown Counsel has direct access to the court records and Attorney General’s databases, and the head of the Police FINU has direct access to the police databases, including INTERPOL as well as domestic databases such as land registry and vehicles. Other databases, such as the Customs information is also available by request from the RA.

The RA has access to the Egmont Group encrypted database (ESW). There is an intelligence task force, the National Intelligence Committee, comprised of Customs, Immigration, Police and Drug officials that are charged with exchange of intelligence information.

Under the PCCA, filing of STRs is voluntary and filing protects the reporting entity from criminal liability for money laundering. Accordingly, there are no direct criminal sanctions for failure to comply with reporting obligations as there are no obligations in this regard. The impetus under this system is the potential for criminal prosecution for participation in a ML offense. Paragraph 18 of the AMLCP does impose sanctions for failure to establish procedures for recognizing and reporting suspicious transactions that include fines up to five thousand dollars for summary convictions and up to fifteen thousand dollars for convictions on indictment. Moreover, Paragraphs 88 through 90 of the Guidance Notes state that RO “should” file STR when the information substantiate a suspicion but this term in the Guidance Notes does not carry the same weight as “shall” in the law or regulations, and thus not read as mandatory by either the authorities or financial institutions. The FSC has not invoked enforcement measures to make this portion of the Guidance Notes mandatory. Moreover, implementation of the provisions in the Guidance Notes has not been fully implemented in the supervisory process. (See below, Table 2 Preventive Measures, Section V, Suspicious Transaction Reporting.)

The FSCA authorizes the FSC to take enforcement actions for contravention of the AMLCP, including revoking or suspending the license, appointing an examiner, issuing a directive to cease a class of business or not to enter into any new contracts for any class of business.

The direct gateway between the RA and domestic law enforcement authorities runs through the Head of the Police FINU, who is also a member of the RA. Section 28(7)(a) of the PCCA authorizes the RA to disseminate information received to any law enforcement agency in the territory. There should be some monitoring, record keeping, and statistics with regard to the information passed from the RA to the Police FINU that is transformed into an official investigation. There is also a need for certainty in the disposition of STRs.

Section 28(7) of the PCCA authorizes the RA to disclose any information received to any law enforcement agency in any other country in order to report the possible commission of an offense, to initiate a criminal investigation respecting the matter disclosed, to assist with any investigation or criminal proceedings respecting the matter disclosed, or to generally give effect to the provisions of the PCCA. Disclosures to foreign law enforcement authorities require the consent of the Attorney General prior to disclosure. The Attorney General may impose conditions on further disclosure.

The RA advises that disclosures to counterpart FIUs, pursuant to the Egmont Group Principles Information Sharing, do not require approval of the Attorney General. The RA has an MOU with the Belgian FIU to facilitate the exchange of information.

The RA does not keep official or formal statistics on STRs received, transmitted to the Police FINU or other domestic law enforcement authority, to foreign FIUs or law enforcement, or to analyze the resulting disposition of STRs. There are general statistics available on mutual legal assistance requests executed by the Police FINU and other authorities dating back to 1992.

The authorities provided general statistics on STRs received. In 1998, 18 were received; in 1999, 27 were received; in 2000, 26 were received; and in 2001, there were 62 received. In 2002, to date 45 have been received. The increase between 2000 and 2001 is notable, but because there are no statistics on the basis of the suspicious transaction reports, the reason for the increase in not known. These statistics do not indicate whether there has been corresponding increase in the cases developed for investigation.

A rough estimate by the authorities suggests that about ¼ of the STRs are relevant in relation to cases handled by foreign jurisdictions. As regards investigations initiated and conducted in the BVI, only a handful of STRs have been used. The number of received STRs is recorded, and all information is scanned and secured in data-files. However, the material is not subject to a qualitative analysis for statistical or strategic intelligence purposes. Since 1998 the RA has received about 180 reports.

The RA advises that they can retrieve statistics as necessary. The RA has a database on STRs from which it could be possible to construct necessary statistics. The RA does not provide statistics to the government for information or reporting purposes, although some information is submitted through an annual report to the executive council. Such lack of statistics makes it difficult to ascertain the operational effectiveness of the RA and Police FINU in processing STRs and analyzing financial intelligence. Without statistics, feedback to the reporting institutions is limited, whereas greater feedback may encourage and motivate more meaningful and targeted STR reporting.

As established under the PCCA the RA falls under the ministry of finance, but currently the RA is budgeted through the FSC. The relationship between the RA and the Police FINU lacks formal structure, particularly with respect to analysis of financial intelligence. Although the authorities advise that the structure has been effective, there is a need for more certainty, both for managing operations and for outside perception. Currently, the authorities believe that the structure has enabled the RA and Police FINU to fulfill their functions. Nevertheless, it is unclear what constitutes pre-investigative analysis of the STRs and how it becomes a matter warranting police investigation. Additional structure may help alleviate this uncertainty. Much of the operations are conducted on an ad hoc basis, so the underlying operations and work plan are not formalized and where weaknesses may be is difficult to determine.

The head of the Police FINU (and member of the RA) is an experienced financial crimes investigator who has conducted internal financial investigation training for the Police FINU. The RA authority advises that members of the Police FINU are undertaking formal training for financial crimes, both for basic understanding and advanced financial crimes detection that are available in the U.K. and in regional Caribbean programs. The Police FINU members also attend training from the Egmont Group, and formal training with C.A.L.P. and FinCEN. It is planned that future Police/Customs and tax officers will be trained as financial investigators and criminal analysts.

High on the list of priorities has been the integrity of the security of disclosures from STRs. The RA maintains a separate database, including a manual file of STRs. There is a secure back up record regularly made of information obtained through STRs. The electronic database contains scanned images of STRs and supporting documents. The database is indexed and checked against existing records. Additional information can be added to the file but the image of the STRs and supporting documents will remain unaltered. The database for STRs is secured and separated from the other operational databases of the Police FINU.

The RA should consider publishing an annual report of its activities, detailing the STRs received and disposition, although the mission was advised that an annual report is made to the executive council. As far as confidentiality is concerned, the FSC members are subject to an obligation of confidentiality under Article 49 of the FSCA. However, there is no specific provision governing confidentiality of the RA. The authorities advise that all persons, including the members of the RA and Police FINU are subject to the tipping off provision of the PCCA for unlawful disclosures.

The current structure of the RA makes it difficult to assess whether it comes under undue influence or pressure from the potential conflicts of interest among the members’ mandates. There are no internal rules or guidelines for the RA’s operations.

Analysis of Effectiveness

As a general matter, the RA is responsible for the receipt and processing of disclosures of suspicious financial transactions that are received in the form of STRs. The RA is a statutory body with limited primary powers, to receive STRs and to disseminate these to law enforcement both locally and abroad. Thus, the RA mainly derives its financial intelligence and investigative powers from its members, who are the managing director of the FSC, the Head of the Police FINU and a Senior Crown Counsel. It appears that the main financial intelligence analysis and subsequent investigations required are conducted on an integrated basis by the Police FINU.

The structure, while apparently working at present, is not formalized and the scope of the RA’s mandate is therefore somewhat unclear, particularly how the tasks and powers are divided between the RA and the Police FINU. Currently, the information contained in the STR can be made available to the police force of the BVI, or used for regulatory purposes, although the latter use is not specified in the PCCA. There are no specific procedures in place as to how decisions on the use of STR are to be made.

Suspicious transaction reporting is voluntary in the BVI, which may be the reason for the relatively low numbers of STRs filed for the size of the financial sector. The RA has no systematic contact with the reporting institutions, but they do attend a number of meetings and issue from time to time alerts on scams or attempted fraud schemes.

Recommendations and Comments

The lack of a clear distinction between the responsibilities and mandates of the RA and Police FINU may pose some problems as more STRs are generated. Although the blurring of functions might have its practical advantages, it could be argued that the present arrangement might interfere with principles of independence and professional secrecy. Furthermore, this lack of clearly defined tasks and powers makes the system vulnerable and heavily dependent on the integrity and ability of the individual members of the RA.

The absence of detailed statistics that are adequately broken-down makes it difficult for the authorities to derive information of either a more general nature or with more strategic value. Thereby the authorities lose a possibility for feedback to the reporting institutions, and they are also hampered with regard to identifying areas of concern and potential improvement in connection with the reporting system.

The BVI authorities have been satisfied with the implementation and effectiveness of the current system of identifying and reporting suspicious transactions, which is predicated primarily on the FSC using its supervisory powers to enforce the Guidance Notes. The system has been especially effective in introducing the identification and reporting system to the industry in an adequate manner. The number of reports—and information given on their use—might indicate that there is a need for a more stringent identification and reporting system established by statute and which can also be enforced by criminal authorities. A statutorily mandated system is generally regarded as an important measure for protecting the financial industry from being misused for money laundering purposes. Among necessary recommendations are:

The FIA should be established and made operational as soon as practicable; Clarify the division of tasks and powers between RA and the FIU to secure independence, integrity and confidentiality; Work out a data-based system for producing reliable and targeted statistics with regard to the contents and the follow-up of STRs; Further develop feedback routines and communication with the reporting institutions in order to identify trends and typologies and keep up motivation in the reporting institutions; Contemplate changes with respect to the status and staffing of the RA. The RA should have more clearly defined tasks and powers; Consider enacting a suspicious transaction reporting law; Consider enacting an obligation to provide additional material regarding a suspicious transaction report—both spontaneously and upon request—statutory or subject to explicit regulations; and The RA should be provided more authority and resources to increase its analytical function and to ensure that valuable financial intelligence received through STRs is properly analyzed, that supporting financial and law enforcement information can be obtained, and that the analysis conducted can be transmitted efficiently to law enforcement and regulatory authorities for maximum use.

The RA should consider publishing an annual report, which in addition to statistical information, provides information on typologies and trends, relevant for the industry subject to the anti-money laundering regime.

Implications for compliance with FATF Recommendations 14, 28, 32

The role of the RA in the BVI is structurally limited and does not appear to be of significant impact in promoting financial institutions to pay special attention to complex or unusual transactions, to increase reporting of STRs, or in providing comprehensive analysis of financial intelligence obtained from STRs. The structural weakness of the RA and its limited access to financial information and indirect access to law enforcement information limits the usefulness of its activities. Guidelines for reporting of STRs are provided at only the most basic level, and further information on evolving typologies is not regularly conducted. The FIU lacks a proper status within the institutional framework of the BVI, which the proposed restructuring to create the FIA may alleviate. Clearer and more formalized processes for sharing and use of financial intelligence submitted to the RA should follow as well, to encourage the widest possible cooperation both domestically and internationally.

International exchange of financial information possessed by the RA should be enhanced to achieve full compliance with FATF Recommendation 32. The RA should share (and should be authorized to do so) nonpublic financial information with counterpart FIUs, subject to international provisions on privacy and data protection as elaborated upon in the Egmont Group Principles of Information Exchange.

IV—Law enforcement and prosecution authorities, powers and duties (compliance with criteria 25-33)

Description

The Police FINU is responsible for investigating all financial crimes, including ML offenses disclosed through STRs. Reports of suspicions of FT are to be reported to the governor, who provides the information to the AGC for action.

The number of requests received from abroad and the limited resources and structure of the Police FINU have fostered a reactive approach to investigations. It is impractical to expect the Police FINU as currently staffed to initiate separate investigations when investigations are taking place abroad already. The focus has therefore been on providing investigative materials for investigations and prosecutions abroad. When the authorities receive requests for an investigation in the BVI, there appears to be sufficient attention given and effective delivery of necessary investigative materials, which suggests that the matters presented are properly investigated. The authorities advise that they received 791 requests dealing with IBCs intelligence in 2001.

The Magistrates’ Code of Procedure, Article 22 provides for a wide range of orders for search, seizure, and interrogation of witnesses. There are provisions for wire tapping under both the Telephone Act and the Telecommunications Act. Authorities advise that controlled delivery is authorized under the Drug (Prevention and Misuse) Act.

To exercise authority needed for this array of investigative tools, there needs to be close cooperation of the Police FINU, RA, and other police and law enforcement officials, both domestically and abroad.

The proposed FIA should have clear procedures for exchange of information to enable the widest possible use of the investigative techniques necessary for prevention and detection of ML and FT offenses.

Section 36 of the PCCA authorizes the Police to obtain orders for the production of information if there are reasonable grounds to suspect that these are relevant to investigating the proceeds of criminal conduct.

The authorities have established a task force for intelligence that includes Customs, Police, Immigration, and the Drug Unit.

Once the FIA is constituted it should be an official member of any task force formed and should have access to all information available to the task force.

Currently, to fulfill their objective of providing efficient and effective investigative support for investigations and prosecutions abroad, the Police FINU and AGC appear to be adequately staffed and funded. Nevertheless, authorities recognize that additional staff and funds are needed, as evidenced by the budget already allocated for the new FIA. Once the FIA is established, authorities should review whether the resources and staffing are sufficient to fulfill the mandate of the FIA.

Statistics are available in some forms, although there is no program for regularly and formally updating the statistics on law enforcement activities. As stated in criteria 23, 25, and 35, there are statistics for the FIU. Statistics for mutual legal assistance are available from the AGC. There is a need for integrated and comprehensive statistics for all aspects of law enforcement investigation and prosecution. It would be advisable for the RA to maintain integrated statistics throughout the process beginning with STR filings and through the ultimate disposition of cases.

Within the domestic law enforcement community, there appears to be an adequate understanding and dissemination of typologies information.

Members of the Police FINU have regularly attended training programs on ML. It is planned that future Police/Customs and tax officers will be trained as financial investigators and criminal analysts. Appropriate training will be made available for other employees in computers and criminal analysis. A budget will be set to allow personnel to attend conferences and training to update the skills in their field of expertise.

Authorities are reviewing the legal framework to enhance necessary investigative tools. AGC advises that all laws concerning financial crimes are being reviewed under a regular rotation. There should be a corresponding review of the operational limits of the current structure. Attention should be paid to problems encountered under the current structure in establishing the operational framework of the FIA. Authorities should monitor the initial operations of the FIA closely to identify further refinements, which are needed on an operational basis.

Analysis of Effectiveness

As a general matter, the Police FINU are responsible for investigating all financial crimes, including money-laundering offenses. Reports on the financing of terrorism are to be reported to the governor, who provides the information to the AGC for action. The AGC is vested with prosecutorial responsibility and for providing mutual legal assistance from formal international requests and MLATs.

Because of the BVI’s unique role in international business, the Police FINU spend considerable time in executing mutual legal assistance. As a consequence, domestically initiated investigations are few. Doubtlessly, the AGC and the Police FINU are well capable of conducting money laundering investigations, but resources are scarce and the number of domestic cases is very limited. The number of staff clearly puts limitations on the possibility of undertaking in-depth investigations both in relation to domestic and international cases. While the investigative powers available seem generally adequate, they could be extended. The authorities are currently reviewing the legal framework with an eye to enhance investigative powers so as to expand the scope and effectiveness of investigative tools.

Some statistics on law enforcement activities in this area is available, but they are not comprehensive. Some statistics on seizures are developed by the Police FINU for internal purposes. According to information provided by the authorities, BVI has assisted foreign authorities in the freezing of substantial values over the last decade.

The substantial number of requests for MLA strongly indicates that the present staffing of the FIU is not sufficient to take on a more pro-active approach with regard to ML/FT cases. The nature of these crimes is concealed/hidden, and sufficient and qualified manpower, as well appropriate technical means, are crucial in order to successfully reveal, investigate and prosecute cases.

Recommendations and Comments

The BVI authorities advise that a decision has been taken by the executive council to establish the FIA, which will have responsibility for the investigative and administrative aspects of financial intelligence. A bill is being drafted. Although the mission did not have access to any specific information on the structure and status of the FIA, the authorities advise that there is already provisioning in the 2003 budget for the FIA.

The authorities have taken positive steps in proposing the formation of the FIA, which is expected to be a separate agency staffed from members seconded from the Police FINU, Customs, Tax, and Civil Service and the AGC. The FIA is expected to be subordinated to the RA and the expectation is to add eleven staff members to the FIA, in addition to the three current staff members of the Police FINU. As part of the FIA, there will be a need for some ad hoc powers to bring in expertise as necessary for deeper investigations such as forensic accounting. The proposal envisages that FIA will be independently funded and internally controlled but with a steering committee from the parent agencies and the governor’s office. It is expected that the FIA will have the powers of the Police and Customs and other powers as may be necessary. These powers should be expressly delineated in the enabling legislation forming the FIA. Although the proposed FIA will be a hybrid of financial intelligence analysis and investigative functions, there should be clear procedures for distinguishing the financial intelligence analysis and the transformation of the intelligence into investigative evidence that is admissible in court proceedings. The Steering Committee should be given responsibility for ensuring that such necessary controls are implemented and maintained.

At minimum, the FIA’s internal procedures should have provisions to reduce potential conflicts of interest among the various bodies. An important dimension is the autonomy and integrity of the new unit. The relationship between the RA and the FIA must be clearly regulated, taking into account their partially different tasks and the need for limiting access to certain types of agency-specific information. Professional secrecy issues must be comprehensively addressed. Emphasis should also be put on clearly defining the authority of the body responsible for the deployment of FIA resources.

Targeted statistics related to law enforcement activities, including the freezing, seizing, and confiscation of the proceeds of crime, should be developed.

Implications for compliance with the FATF Recommendation 37

For the purposes of FATF Recommendation 37, the provision of mutual assistance, including in criminal matters, is adequately addressed in the CJIC and the FSIC. However, execution of compulsory measures arising from mutual legal assistance requests is inconsistent in practice. The procedures for invoking and executing the CJIC and FSIC provisions should be made clearer and formalized to allow for effective use of law enforcement measures in response to foreign requests.

V—International Co-operation (compliance with criteria 34-42)

Description

The Criminal Justice International Cooperation Act (CJIC) is the major legislative basis for the range of mutual legal assistance in AML/CFT matters. Sections 5, 6, and 7 of the CJIC authorize providing evidence, including seizure of records, search of premises and seizure of evidence, and enforcement of foreign forfeiture orders. In addition, Sections 4 and 5 of the Financial Services (International Cooperation) Act, 2000 (FSIC), allow for the sharing of records in the possession of the FSC with foreign authorities. The PCCA provides specifically for the enforcement of external confiscation orders for ML. The provision of mutual legal assistance is only limited insofar as the BVI requires dual criminality for the provision of evidence and records.

The AGC advises that amendments to the CJIC are contemplated to widen assistance delivered or sought, and to authorize police to interrogate witnesses directly under a mutual legal assistance request whereas currently, interrogation of witnesses under the CJIC may only be carried out by a court order.

In addition to mutual legal assistance in criminal matters, the Evidence (Proceedings in Foreign Jurisdictions), Act 1988 authorizes provision for assistance in civil matters, including examination of witnesses, production of documents, inspection, photographing, preservation or detention of property, or the medical examination of any person.

See also, discussion in criterion 22 regarding sharing of information by the RA.

Provision of mutual legal assistance is generally effective, efficient and timely. The BVI authorities appear well equipped for responding to a high level of requests that require exercising a number of investigative techniques. It should be noted that resources are likely to be strained if the number of requests continues to increase. The BVI authorities play a significant role in assisting other jurisdictions’ investigations. Mutual legal assistance requests have tripled in the last seven years, and this has spurred the authorities to begin a review of the entire process for providing mutual legal assistance. To date, the BVI authorities generally do not request assistance from other jurisdictions, rather focusing on the delivery of assistance.

In the exercise of mutual legal assistance on behalf of the United States, based on the Mutual Legal Assistance (United States) Act of 1990, there is a confidentiality provision that prohibits a person subject to an order from disclosing the particulars of the request to any person for a period of ninety days from the date of receipt of the request.

Since 1992, authorities have compiled statistics on mutual legal assistance requests that are broken down by type of action necessary, entities involved, and other features. These statistics demonstrate an increasing number of enquiries. The increase supports the perception of the high level of cooperation of the BVI in the international community in providing mutual legal assistance.

BVI has a mutual legal assistance treaty with the United States. The FSC and AGC advise that mutual legal assistance may be provided directly under the CJIC and the FSIC without the need for treaties or agreements and any agreements entered into cannot exceed the scope of assistance contemplated by the CJIC. The mutual legal assistance laws and agreements are supplemented by the sharing of financial intelligence through the Egmont Group and participation in INTERPOL.

In addition to the gateway through INTERPOL, the Police FINU advise that there are gateways for the exchange of information directly with other police units, and that foreign law enforcement may make requests directly to the Police FINU. The Police FINU advise that there are no legal impediments to the direct sharing of information with foreign police. It is unclear whether exchange of information on a police-to-police basis encompasses full dissemination of case specific information or whether the transmittal of actual evidence requires a more formal mechanism.

It does not appear that statistics on direct exchange of information between law enforcement authorities is maintained. However, the usefulness of compiling such statistics is marginal, as many such contacts are informal and will be supplemented with more formal requests either through INTERPOL or mutual legal assistance at the stage when transmittal of usable evidence is needed.

Cooperative investigations are encouraged and supported. BVI law enforcement bodies are primarily focused on ensuring that all necessary cooperative measures are in place. Authorities advise that controlled delivery is authorized and undertaken. Authorities regularly coordinate cooperative investigations with the United States Customs authorities.

Extradition is permitted for individuals charged with crimes punishable by imprisonment of over twelve months. Extradition is specifically provided for in the Extradition Treaty (US/UK) of 1977 as amended by Supplemental Treaty of 1985, the Fugitive Offenders (Virgin Islands) Order of 1967, Extraditions Act of 1989 (UK) and the Extradition (Overseas Territory) Order of 2002. The AGC advises that extradition of nationals is permissible.

In addition to extradition, persons connected with terrorism may be denied entry to the BVI, be deported, or be detained pending deportation. There is also provision to declare persons undesirable by placing names on a stop list at the ports of entries. Recently, the National Intelligence Committee (2001) was formed to enhance law enforcement and networking with other countries to target terrorists and other criminals.

Analysis of Effectiveness

International cooperation and provision of mutual legal assistance is highly effective in the BVI. The CJIC and the FSIC allow for broad exchanges of information, both for investigations and prosecutions and for regulatory matters. The BVI legislation requires dual criminality for the provision of evidence and records. The PCCA specifically provides for the enforcement of external confiscation orders for money laundering. Amendments to the CJIC are contemplated, in order to widen the scope of assistance and to authorize the police to interrogate witnesses directly under a mutual legal assistance request.

There are a substantial number of requests for assistance from foreign counterparts, as reflected in the available statistics. The statistics only give information on the number of requests in different categories, and do not highlight the efforts put into their execution. Many of the requests are handled by the police themselves (company enquiries and checks). Work connected to requests for assistance takes up the major part of the capacity of the Police FINU. The Head and the staff of the unit, as well as the AGC, seem very competent in this field and have accumulated considerable experience.

The authorities of BVI should be commended for the efforts put into international law enforcement cooperation.

The general impression is that requests for assistance are executed in a professional and timely manner. There is perhaps some strain on the limited number of staff to thoroughly follow up all requests in the desired detail. The importance of BVI as a financial centre strongly suggests that the number of requests for mutual assistance in criminal matters will remain at a high level. As money laundering operations often will involve several jurisdictions, the role of the BVI must be considered to be of great significance in the global efforts to fight money laundering and the financing of terrorism.

Recommendations and Comments

Further develop statistics in the area of international cooperation, including freezing, seizing, and confiscation of assets.

The contemplated changes to the CJIC and the establishment of the FIA would further enhance the ability of expediently executing requests for assistance.

Implications for compliance with FATF Recommendations 3, 32, 33, 34, 37, 38, 40, SR I, SR V

The legal provisions for mutual legal assistance in the CJIC and FSIC are sufficient to permit a wide range of mutual legal assistance for compliance with FATF Recommendations 3, 33, 37, 38 and 40 and the processes for effectuating mutual legal assistance appears to function well. Additional authority is required to achieve compliance with FATF 32 that ensures that there is substantive and effective exchange of information concerning suspicious transactions. Because most of the information on ML and FT discovered in the BVI relates to activities and investigations in the United States, the bilateral agreement between the two suffices to cover a large portion of the requests received in the BVI. Nevertheless, additional bilateral agreements should be considered to strengthen compliance with FATF 34. Additional legal provisions are necessary to ensure that the broadest possible scope of legal assistance can be offered in compliance with FATF Special Recommendation V.

Assessing preventive measures for financial institutions

Table 6.

Detailed Assessment of the Legal and Institutional Framework for Financial Institutions and its Effective Implementation

Table 6.

Detailed Assessment of the Legal and Institutional Framework for Financial Institutions and its Effective Implementation

I—General Framework (compliance with criteria 43 and 44)

Description

There is no confidentiality law or secrecy provision in legislation that would inhibit the implementation of necessary preventive measures for financial institutions.

The FSC is responsible for ensuring the implementation of AML/CFT requirements by all financial institutions, pursuant to Sections 4, 37 and 38 of the FSCA. The PCCA and AMLCP are included into the schedule of the FSCA to ensure the coverage of AML/CFT. Specifically, Section 37(1)(a)(ii) incorporates both the AMLCP and any guidelines issued, including the Guidance Notes.

The FSC is responsible for implementation across all financial sectors covered by the AMLCP, including, inter alia, banks and trust companies, mutual funds and mutual fund managers, insurance business, company management, money remitters or check encashment, and any activity in which money belonging to a client is held or managed by lawyers or accountants. Under Section 38 of the FSCA, the FSC has the authority to revoke licenses for violations of the AMLCP.

Direct, on-site supervision has been in place for trust and company service providers and is being implemented more fully for banking, insurance, mutual funds and mutual fund managers, but the implementation has not been completed and the level of compliance cannot be readily ascertained as yet. Additional staffing resources and adaptation of inspection manuals for AML/CFT measures will be needed. While money remitters are not yet directly subject to licensing and supervision, a bill has been proposed to bring money remitters under the umbrella of FSC supervision, which would include supervision and inspection for AML/CFT preventive measures.

Analysis of Effectiveness

The general framework for AML compliance is contained in the AMLCP and the Guidance Notes, which provide for customer due diligence measures (KYC), record keeping, ongoing monitoring of relationships and transactions, and suspicious transaction reporting. They also impose minimum requirements for internal procedures, controls, and audit. The AMLCP and Guidance Notes provide sufficiently detailed legal requirements and clear instructions for reporting persons to establish effective internal controls and achieve compliance. The AMLCP and Guidance Notes apply consistently across a broad number of financial intermediaries which include banks and trust companies, insurance business, mutual funds and mutual fund managers, company managers (either eligible introducers or trust companies), money remitters, and any activity in which money belonging to a client is held or managed by an attorney or accountant.

The FSC is the supervisory authority vested with the responsibility for ensuring adherence to the AMLCP and the Guidance Notes. The FSC has direct prudential supervisory authority, including assessment of fit and proper tests for management of banks and trust companies, insurance, mutual funds and mutual fund managers, and administrators. Currently, money remitters are not licensed and supervised. The FSC has on-site inspection powers as well as broad powers for approval of compliance officers. The FSC is in the process of completing the necessary inspection manuals and procedures needed to exercise its full range of supervisory functions.

With respect to implementation, the strongest tool, on-site supervision, as such, is not yet fully in place, although there are visits to regulated persons, and questionnaires for compliance are required as part of these visits. However, transaction testing and file verification is not fully implemented. As a result of the stage of development of the FSC’s supervisory tools, the effectiveness of implementation within the sectors cannot be accurately assessed. The FSC believes there is a high level of compliance across sectors, and that the industries have been responsive to adopting internal controls policies and procedures and adhering to KYC requirements.

Of some concern is the reliance on eligible introducers (composed in the BVI of registered agents as well as lawyers and other firms both domestic and abroad) to conduct KYC on behalf of BVI financial intermediaries. Further verification is needed to ascertain whether the supervisory controls in place are sufficient to test whether the eligible introducers are meeting the statutory requirements to qualify under the AMLCP, and adherence of the eligible introducers in performing the KYC requirements.

Money remitters are not subject to licensing and supervision, so implementation through supervisory measures is not completed as to these entities. Implementation in money remitters is therefore noncompliant.

Recommendations and Comments

Implementation must be completed and on-site inspections should be regularly used to verify the compliance programs for AML/CFT. Specific transaction testing should be implemented as part of both on-site inspection and as a requirement for internal audit testing by reporting persons. Supervisory controls should pay particular attention to adherence to KYC requirements by eligible introducers.

As an added measure to move forward with implementation, the FSC should consider requiring external auditors of financial intermediaries to provide certifications on AML/CFT compliance and to make direct reports to the FSC concerning AML/CFT internal controls and procedures, as well as specific file and transaction testing. Such a requirement will require legislative changes which are not in the control of the FSC to authorize direct communication between the FSC and external auditors, impose specific instructions for auditors, and allow for pre-audit and post-audit meetings between the FSC and external auditors.

Implications for compliance with FATF Recommendation 2

Financial secrecy is not an impediment to the implementation of FATF Recommendations concerning preventive measures for financial institutions, and therefore, the BVI laws and institutional framework are designed in a manner sufficient for compliance with FATF Recommendation 2.

II—Customer identification (compliance with criteria 45-48 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 68-83 for the banking sector, criteria 101-104 for the insurance sector and criterion 111 for the securities sector)

Description

The FSC advises that anonymous accounts are not authorized in the BVI.

Reporting parties are required to identify their customers as soon as reasonably practicable after a continuing business contact is first made as well as occasional customers upon the production of satisfactory evidence of their identity (Paragraphs 4 and 5 of AMLCP). There is no threshold for requirements of customer identification in one-off transactions. Paragraph 4(5) of the AMLCP provides reverification of customer identification is required when doubts arise during the course of the relationship and additionally Paragraphs 4 provides that when satisfactory evidence is not obtained, the business relationship or transaction shall not proceed any further.

For introduced business, paragraph 6 of the AMLCP requires eligible introducers to conduct due diligence and to maintain records and when requested to supply the verification of the identity to the regulated persons in the BVI. When satisfactory evidence of identity is not obtained or produced, the business transaction or relationship shall not proceed any further (Paragraph 6(7) AMLCP). Appendix A of the Guidance Notes provides guidelines and information to be provided for introduction of clients by local reliable introducers. As a result, the regulated person does not have direct responsibility for conducting customer due diligence of introduced business, and may not know if the due diligence has been conducted properly unless the regulated person affirmatively requests the information.

Section 4(1) of the AMLCP requires establishment of identification procedures in relation to new and continuing business relationships, but Section 4(2) and 4(3) contain exceptions to the need for verification of identity under certain circumstances. Section 4(2) provides that the verification procedures do not apply if there are reasonable grounds for believing that the applicant for business is a regulated person, or an authorized financial institution in a FATF or CFATF country with AML/CFT laws at least equivalent to the BVI, or is an attorney or accountant. Section 4(3) provides that the identification procedures are not required if there are reasonable grounds for believing that the applicant for business acts in the course of a business relation to which a regulatory authority outside the territory exercises regulatory functions and is based in a FATF or CFATF country with AML/CFT laws at least equivalent to the BVI.

Paragraph 66 of the Guidance Notes provides that a valid passport, national identity card, armed forces identity card, or drivers license bearing a photograph is sufficient to establish the identity of individuals. Paragraph 72 of the Guidance Notes provides for documents that can verify the identity of companies, such as a certificate of incorporation, the name and address of beneficial owners or persons on whose instructions the signatories on the account are empowered to act, and memoranda and articles of association, among others. In addition, a resolution, bank mandate, signed application form or any valid account-opening authority, and copies of powers of attorney, among other documents, are acceptable.

The FSC advises that one bank has numbered accounts. However, this is not a commercial bank and the accounts require customer identification and due diligence in accordance with the AMLCP.

While only currently included in inspection procedures for trust and company service providers, the FSC advises on-site inspections of banks, insurance, and mutual funds will conduct sampling of customer identification requirements.

Paragraph 31 of the Guidance Notes addresses beneficial ownership information, by requiring that an institution carry out verification, which requires intermediaries to read the term “principals” in the widest possible sense, including beneficial owners. In addition Guidance Notes paragraphs 35 and 37 require verification of partnerships’ and companies’ ultimate beneficial owners. As a general matter, the FSC advises that satisfactory evidence of identity necessarily requires obtaining the true beneficial ownership information. Paragraph 41 of the Guidance Notes also provides that where an institution suspects that there may be an undisclosed principal, it should monitor the activities of the customer to ascertain whether the customer is in fact merely an intermediary.

If there are doubts concerning the true beneficial owner, Guidance Notes Paragraph 77 provides authority to suspend account relationships and funds held to the applicant’s order (if any) may be returned until the customer provides sufficient information concerning the beneficial ownership.

Supervision of implementation has not yet been completed, and some concerns remain about whether beneficial ownership information is regularly obtained, particularly when the due diligence is being carried out by eligible introducers. Inspection procedures under development should assess whether information is obtained.

Paragraph 100 of the Guidance Notes requires that in the case of electronic transfers, institutions retain records of payments made with sufficient detail to enable them to establish the identity of the remitting customer and the identity of the ultimate recipient. Although money remitters are subject to the AMLCP, these are not regulated on a prudential basis. There is a proposed bill to regulate money remitters, including licensing and supervision.

Analysis of Effectiveness

The AMLCP and Guidance Notes set standards for financial institutions with regard to knowing the identity of all customers. Financial institutions are required to identify their customers and to record their identity. The AMLCP stipulates identification procedures in relation to new and continuing business relationships, as well as for one-off transactions and for introduced persons. Verification subjects encompass individuals, partnerships and companies (including corporate trustees), intermediaries, and other institutions (such as associations, foundations, charities, etc.).

The individual subject to diligence may be the account holder himself or one of the principals to the account. The Guidance Notes specify that an individual trustee should be treated as a verification subject unless the institution has completed verification of that trustee in connection with a previous business relationship or one-off transaction and termination has not occurred. When the applicant for business consists of individual trustees, all of them should be treated as verifications subjects (unless they have no individual authority to operate a relevant account or otherwise to give relevant instructions). Likewise, all partners of a firm which is an applicant for business, shall be treated as verification subjects. In the case of limited partnership, the general partner is to be treated as the verification subject and limited partners need not be verified unless they are significant investors. Unless a company is quoted on a recognized stock exchange or is the subsidiary of such a company or is a private company with substantial premises and payroll of its own, steps must be taken to verify the company’s underlying beneficial owner(s), including any person(s) on whose instructions the signatories of an account, or any intermediaries instructing such signatories, are accustomed to act.

The institutions undertaking verification should establish to their reasonable satisfaction that every verification subject relevant to the application for business actually exists and all the verification subjects on joint applicants for business should normally be verified. Institutions should carry out verification in respect of the parties operation the account.

Where there are underlying principals, the true nature of the relationship between the principals (including beneficial owners, settlers, controlling shareholders, directors, major beneficiaries, etc.) and the account signatories must also be established and appropriate enquires performed. It would be advisable for the Guidance Notes to specify that all information obtained on customer due diligence undertaken for introduced business be transmitted to the regulated entity for confirmation and to require that the customer identification information be accessible in the BVI offices of regulated entities.

Risk-based procedures for banking KYC are not sufficiently developed at this stage. Specific procedures to incorporate the requirements of the Basel Customer Due Diligence Paper, including provisions for Politically Exposed Persons (PEPs) and enhanced procedures for higher risk customers and private banking are not in place.

Recommendations and Comments

Since implementations has not been achieved yet, it remains difficult to assess the level of compliance in the performance of KYC policy. When on-site inspections are fully implemented, the FSC advises that samplings of customer identification will be undertaken. Special attention should then be given to assess whether compliance is sufficient with respect to identification of the beneficial owner(s), and inspection procedures should provide for an assessment of the quality and validity of information obtained.

The identification procedures for applying for business which is introduced to a person by a third party (the Introducer) require eligible introducers to conduct due diligence, including establishing and maintaining identification procedures as soon as reasonably practicable after contact is made between the relevant person and the introducer. Implementation of inspections done by the FSC should help determine whether the diligence performed by the introducers is satisfactory.

When money is remitted through a financial institution, the institution is required to retain records of payments made with details sufficient to establish the identity of the remitting customer and as far as possible the identity of the ultimate recipient. However, independent money remitters are not subject to regulation yet, although the assessment team has been advised that a bill has been drafted to regulate the sector. Until it is enacted, there is no regulatory requirement to include originator information on fund transfers and regulated messages. The bill should include clear instruction regarding mandatory information which needs to be attached to fund transfers, and in particular the name, address, and account number (when being transferred from an account). Attention should be given to the FATF special recommendation VII and its interpretative note, once it is adopted.

Implications for compliance with FATF Recommendations 10, 11, SR VII

Legal provisions in the AMLCP and in the Guidance Notes provide details and requirements sufficient to prevent financial institutions from keeping anonymous accounts or accounts in obviously fictitious names, and require them to obtain information concerning the true identity of the customer. As a result, the legal provisions, as written, are sufficient to achieve compliance with the minimal requirements of FATF Recommendations 10 and 11. However, implementation is lagging, and to date the FSC is not yet conducting substantive inspections on compliance with KYC obligations in the financial sectors. Information about beneficial ownership is, thus, lacking in many cases. Accordingly, the institutional measures and implementation for KYC needs to be immediately and significantly improved to reduce the risks of misuse of BVI financial service providers. Of some concern is the reliance on eligible introducers to conduct KYC on behalf of BVI financial intermediaries. Verification is needed to ascertain whether the supervisory controls in place are sufficient to test whether the eligible introducers are meeting the statutory requirements to qualify under the AMLCP and their adherence in performing KYC requirements.

III—Ongoing monitoring of accounts and transactions (compliance with Criteria 49-51 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 84-87 for the banking sector, and criterion 104 for the insurance sector)

Description

Guidance Notes Paragraphs 78 through 95 detail recognition of suspicious customers and transactions, and the reporting of suspicions both to the intermediaries Reporting Officer and reporting to the Reporting Authority. Appendix D of the Guidance Notes further detail examples of suspicious transactions for money laundering, which while detailed, are not intended to be exhaustive. These suspicious transactions cover using cash transactions, bank accounts, investment related transactions, offshore international activity, financial institutions’ employees and agents, unsecured lending, and sales and dealings staff. There are specific guidelines for new business and intermediaries, and for dealing patterns of abnormal transactions and settlements (payment, registration and delivery and disposition). These guidelines also require scrutiny of company formation and management that involve suspicious circumstances relating to the customer’s behavior, suspicious circumstances for groups of companies, and potentially suspicious secrecy.

The RA and FSC advise that there is a high level of compliance with these Guidance Notes and that the industries are aware of the need for ongoing monitoring and detection of suspicious transactions. Nevertheless, the low level of STRs filed in the jurisdiction given the size of the financial community calls into question whether implementation has been fully achieved. When inspection procedures and manuals are completed and on-site inspections have begun, authorities will have a better understanding of the true level of understanding of, and compliance with, the obligations to monitor relationships.

The AMLCP and Guidance Notes do not identify jurisdictions for which AML/CFT systems are weak. The FSC advises that the baseline level of scrutiny required under the AMLCP and Guidance Notes is sufficient to alert financial intermediaries of the need to monitor independently developments such as awareness of the FATF NCCT lists. The FSC further advises that if needed alerts on jurisdictions can be issued by the RA, however, there have been no specific alerts concerning jurisdictions with weak AML/CFT systems and the need for additional scrutiny.

The Guidance Notes do not yet specifically require for enhanced scrutiny for wire transfers that do not contain originator information. When the FATF completes the Interpretive Note on Special Recommendation VII, the authorities should consider a corresponding issuance alerting financial intermediaries of the need for enhanced scrutiny in accordance with the conclusions of the Interpretive Note.

Analysis of Effectiveness

Financial institutions are required to pay special attention to suspicious customers/transactions. The AMLCP and Guidance Notes specify when financial institutions must report unusual or suspicious transactions to the supervisor or other authority. Both the Code and the Notes also set regulations and guidelines issued to financial institutions regarding the recognition of unusual or suspicious transactions.

The Guidance Notes define a suspicious transaction as one which is inconsistent with a customer’s known legitimate business or activities or with the normal business for that type of account. Therefore, an important precondition of recognition of a suspicious transaction is for the institutions to know enough about the customer’s business to recognize that a transaction is unusual. The Guidance Notes classify the suspicious transactions into the following categories: any unusual financial activity of the customer in the context of his own usual activities; any unusual transaction in the course of some usual financial activity; any unusually-linked transactions; any unusual employment of an intermediary in the course of some usual transaction or financial activity; any unusual method of settlement; and unusual or disadvantageous early redemption of an investment product. Examples of common ML transaction typologies are given in appendix D attached to the Guidance Notes.

Recommendations and Comments

The Guidance Notes indicate that the Reporting Officer “should be well versed in the different types of transactions which the institution handles and which may give rise to opportunities for money laundering.” The FSC and the RA advise that regular contacts are maintained with the financial industry to ensure that there is a thorough knowledge and understanding of the evolving patterns and trends of money laundering. The RA advise that they meet with the representatives of professional associations, or with the financial institutions on a individual basis, to exchange views on the issue. However, there has been no update of the ML transactions typologies since the Guidance Notes were issued. RA could consider supplementing these initial typologies with new trends and patterns, as they are emerging regionally and are discussed at C-FATF meetings, or have been detected on the BVI territory.

The AMLCP provides for a number of exemptions to the identification duties when the applicant for business is a regulated person or an authorized financial institution in a country or territory which is a member of the FATF or CFATF and which has AML laws at least equivalent to those of the BVI, or is an Attorney-at-Law or an accountant. There are no written guidelines to give special attention to business relations and transactions with persons in jurisdictions that do not have adequate systems in place to prevent or deter ML or FT. However, the FSC advises that financial institutions are aware of the necessity to scrutinize customers relationships or transactions in and out from jurisdictions that have been identified as weak in the international AML/CFT framework, in particular for those listed as non-cooperative countries and territories by the FATF.

Implications for compliance with FATF Recommendations 14, 21, 28, SR VIII

The level of scrutiny required by financial institutions, while in itself is adequate, is not sufficiently supported by a requirement to file an STR because financial institutions have the option of rejecting the transaction and returning funds to the client. The basis by which financial institutions examine the background and purpose of transactions is not sufficiently developed to allow for meaningful scrutiny or written analysis by the financial institutions. Therefore, compliance with FATF Recommendation 14 needs improvement.

IV—Record keeping (compliance with Criteria 52-54 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criterion 88 for the banking sector, criteria 106 and 107 for the insurance sector, and criterion 112 for the securities sector)

Description

Paragraphs 7 and 9 of the AMLCP require financial institutions to maintain records on customer identity for at least five years. Paragraph 7 of the AMLCP requires that the records maintained indicate the nature of the evidence obtained and comprise a copy of the evidence, or where this is not reasonably practicable, contains such information as would enable a copy of the evidence to be obtained. Paragraph 9 of the AMLCP requires retention of records for five years from the date when all activities relating to an occasional transaction were completed, or when the business relationship ended, or where the business relationship was not ended, the last transaction was carried out.

Section 35(2) of the FSCA authorizes the FSC to examine and make copies of documents belonging to financial intermediaries that relate to the carrying out of financial services business by the relevant person. Paragraph 97 of the Guidance Notes authorizes the RA to request an institution keep records for more than the five year period if an investigation into a suspicious customer or transaction has been initiated.

Paragraph 8 of the AMLCP requires financial intermediaries to maintain records of all transactions carried out or on behalf of a customer for at least five years. Such records must be sufficient to identify the source and recipient of payments from which investigating authorities will be able to compile an audit trail for suspected money laundering. See also criterion 52. Paragraph 96 of the Guidance Notes provides further details on the audit trail and requirements for maintaining entry records, ledger records, and supporting records. Paragraphs 98 through 103 of the Guidance Notes detail the contents of the records to be maintained, including transaction specific records including details of personal identity and details of securities and investments transacted.

Section 35 of the FSCA authorizes the FSC to inspect and obtain all records necessary and Section 36 of the PCCA authorizes law enforcement to obtain court orders for the production of material related to the proceeds of criminal conduct. With respect to records relating to FT, the governor is vested with the authority to direct any person to furnish to him any information in his/her possession or control, or to produce any document in his/her possession of control, which the governor may require for the purpose of securing compliance with or detecting evasion of the Statutory Order 3366.

Analysis of Effectiveness

Financial institutions are required to keep records in order to facilitate the investigation of any audit trail concerning the transactions of their customers. In particular, institutions should keep all account opening records, including verification documentation and written introductions. They should also keep all accounts ledger records, and all records in support of ledger entries, including credit and debit slips and checks. Records relating to verification generally comprise a description of the nature of all the evidence received relating to the identity of the verification subject, and the evidence itself (or a copy of it or, if that is not readily available, information reasonably sufficient to obtain such a copy).

Records must be kept in a “readily retrievable” form, which may consist of an original hard copy, a microform, or electronic data. Records held by third parties would not qualify as readily retrievable unless the third party itself is an institution that is able and willing to keep such records and disclose them when required.

Recommendations and Comments

The BVI is compliant with respect to keeping of records. Material is to be made available for law enforcement purposes upon an order obtained from the court (PCCA), and for the purposes of the prudential supervision of a financial services business carried on in or from within the BVI, the FSC may examine and make copies of such records.

Implications for compliance with FATF Recommendation 12

The legal requirements for record keeping allow for recoverability of records and ensure that the records maintained are sufficient to permit reconstruction of individual transactions for adequate compliance with FATF Recommendation 12.

V—Suspicious transactions reporting (compliance with Criteria 55-57 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 101-104 for the insurance sector)

Description

Suspicious transaction reporting for money laundering is voluntary under the PCCA, and when an STR is filed with the RA, the person filing has a presumption of protection from criminal prosecution under the money laundering statutes. Filing of an STR mitigates the risk of that the reporting party will be implicated in a criminal prosecution for ML. In addition, pursuant to Statutory Order 1822, Article 12 and Schedule 1, impose mandatory reporting of FT offenses because failure to report knowledge or a reasonable grounds to suspect that came to the person in the course of a business in a regulated sector to a constable or a nominated officer, will result in criminal liability under the Statutory Order. Paragraphs 88 through 90 of the Guidance Notes indicate that financial institutions “should” file when information substantiates suspicion of laundering. This is not interpreted as elevating STR filing to a mandatory level. Further, the Guidance Notes paragraphs and the AMLCP only require financial institutions to adopt and implement a policy to report transactions that raise suspicions of money laundering. This means that the financial institution need not file any STR in cases where it suspects that the assets are criminal proceeds providing there is no suspicion of money laundering. Next, both the AMLCP and the Guidance Notes only require the financial institutions to adopt and implement a policy to report STRs that have in fact been completed. This means that the financial institution need not file an STR in cases where a transaction is suspicious providing that it does not complete the transaction.

Paragraph 14(1) of the AMLCP requires STRs be filed with the RA and requires reporting parties to have written internal reporting procedures that enable their directors, partners, management, and key staff to know to whom they should report any knowledge or suspicion of money laundering. The procedures should ensure that there is a clear reporting chain under which suspicions of money laundering will be passed to the Reporting Officer (RO). However, the AMLCP does not specifically require that reporting entities establish procedures for management and key staff to identify suspicious transactions or to report such transactions to the RO.

Nevertheless, Paragraph 84 of the Guidance Notes provides that institutions should ensure that key staff know to whom their suspicions should be reported and that there is a clear procedure for reporting such suspicions without delay. Appendix E of the Guidance Notes suggest a format for internal reporting and Appendix F sets forth the standard form for reporting to the RA.

Reporting persons are protected under Section 28(2)(a) of the PCCA, which provides that where a person discloses to the RA a suspicion or belief that any funds or investments are derived from or used in connection with criminal conduct, or discloses to the RA any matter on which such a suspicion or belief is based, the disclosure shall not be treated as a breach of any restriction on the disclosure of information imposed by statute or otherwise and shall not give rise to any civil liability.

Section 31 of the PCCA prohibits tipping off concerning an investigation that is being or is about to be conducted into money laundering when such disclosure to any other person information is likely to prejudice that investigation or proposed investigation. Section 31 is broadly worded and applies as well to the authorities, so that unjustified or unauthorized disclosures of information would constitute an offense.

Analysis of Effectiveness

Currently, suspicious transaction reporting is voluntary and filing of STRs provides a safe harbor from liability for ML for the reporting person. While this has been sufficient for generating STRs for obviously suspicious transactions and activities, there may be some gaps in filing of reports for which the situation is questionable but the reporting party has refused the transaction rather than file an STR. On a systemic level, opportunities for detecting suspicious or unusual activities in this vein may be lost. Tipping off is prohibited under the PCCA. The law does not provide for the RA or other competent authority to order blocking or freezing of transactions when a STR is filed. Authorities are hesitant to move toward such powers because of questions about becoming “constructive trustees” for the funds and being subject to liability for loss or damage for blocked or frozen transactions. While this concern is valid in a common law jurisdiction, temporary freeze measures are effective in other common law jurisdictions and corresponding provisions for immunity from liability can be enacted that provide a modicum of protection.

Authorities advise that mandatory STR reporting is contemplated.

Recommendations and Comments

To fully capture potential unusual and suspicious transactions reporting should be mandatory.

Increasing reporting that results will require additional specialized guidance on typologies and trends, and may require additional requirements for financial intermediaries to adapt their internal reporting procedures and controls.

Implications for compliance with FATF Recommendations 15, 16, 17, 28

STR reporting in the BVI is relatively weak and not sufficient to inform the FIU and law enforcement about potential criminal activities that may be misusing the financial sector. Of greatest significance is the voluntary nature of the suspicious transaction reporting requirement. Legal protections for financial institutions, directors and staff for the reporting of suspicious transactions, should be strengthened to provide an affirmative protection from liability for disclosing information through an STR, and for responding to requests for further information in support of the STR. Moreover, there should be a specific authority of the RA or the Police FINU to block transactions or accounts for a limited period of time after a SAR is received. The authorities’ arguments concerning the creation of a constructive trust through such authorities are not persuasive—such authority can be designed in legislation to limit the liability for direct and consequential damages for any blocking.

VI—Internal controls, Compliance and Audit (compliance with Criteria 58-61 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 89-92 for the banking sector, criteria 109 and 110 for the insurance sector, and criterion 113 for the securities sector)

Description

Programs for internal controls in financial institutions are provided for directly in the AMLCP, and are sufficiently detailed and clear to require financial institutions to construct written policies for suspicious transaction detection and for ensuring compliance with requirements in the AMLCP. Specifically, Paragraph 14 of the AMLCP requires written internal procedures for suspicious transaction detection and reporting. Paragraph 14 of the AMLCP also contemplates designation of a Reporting Officer, who is responsible for receiving suspicious reports internally and reporting STRs to the RA and who may be the same person as the compliance officer under Paragraph 12 of the AMLCP.

Paragraph 15 of the AMLCP requires relevant persons to provide training for all directors, partners, all persons involved in management, and all key staff to ensure they are aware of the PCCA, regulations made there under, and the AMLCP. Paragraph 16 of the AMLCP requires training for senior and specialist staff regarding the relevant person’s internal policies and procedures to prevent money laundering, its customer identification, record keeping, and other procedures, and the recognition and handling of suspicious transactions. Paragraph 17 requires refresher training once every year to remind key staff of their responsibilities and to make them aware of any changes in the law relating to money laundering and the internal procedures of the relevant person.

Guidance Notes 105 through 107 provide further details on the duty to ensure that key staff receive sufficient training to alert them to the circumstances whereby they should report customers/clients and all their transactions to the internal compliance officer. This includes basic elements of the legislative and regulatory framework as well as the recognition and handling of suspicious transactions, and vigilance policies on systems. Paragraph 106 reminds key staff of the personal legal liability for failure to perform the duty of vigilance and to report suspicions appropriately. Paragraph 107 sets forth training programs for key staff in accordance with particular commercial requirements, including new employee training, cashiers/foreign exchange operators/dealers/salespersons/advisory staff, staff dealing with account opening and with accepting new customers or business, staff who process settled transactions, and staff with responsibility for supervising or managing new staff.

Paragraph 13 of the AMLCP provides for a due diligence audit to be conducted by the FSC or a person designated by the FSC to verify compliance with the AMLCP or any other directive related to money laundering. However, there is no specific requirement for an audit testing function for AML/CFT measures under the institution’s own audit mechanism, whether internal or external. It would be advisable for the FSC to prescribe audit procedures for internal or external audit of AML/CFT to test the compliance with the AMLCP and Guidance Notes. Such audit testing reports should be made available to the FSC for enhanced supervision.

Paragraph 12 of the AMLCP requires appointment of a compliance officer to be approved by the FSC for ensuring compliance with the AMLCP. The compliance officer must be a senior officer with relevant qualifications and experience to enable him to respond sufficiently well to enquiries relating to the relevant person and the conduct of its business. Article 34 of the FSCA requires the appointment of a compliance officer, who may with the approval of the FSC also be appointed a compliance officer for AML under Paragraph 12 of the AMLCP.

The FSC has drafted a form for the approval of appointment of a compliance officer, which requires specific and detailed background information prior to approval. To date, the FSC has not required submission of these approval forms. Paragraph 12(2)(b) and (c) require that the compliance officer be responsible for establishing and maintaining a manual of compliance procedures and ensuring compliance by staff. To do so, the FSC is to prescribe specific guidelines. The FSC has not yet invited reporting persons to submit appointment of compliance officers for approval under these provisions. The FSC should complete both the approval form for compliance officers and finalize guidelines for duties of compliance officers as soon as reasonably practicable. Financial institutions are not specifically required to put in adequate screening procedures to ensure high standards when hiring employees, outside of fit and proper tests and approval by the FSC of the compliance officer, which may pose a risk of abuse of financial institutions.

Guidance Notes paragraphs 5 and 157 remind regulated institutions in the BVI to ensure that their branches, subsidiaries, and representative offices operating in other jurisdictions observe standards at least equivalent to these Guidance Notes.

Analysis of Effectiveness

The legal provisions for internal controls are sufficient. The AMLCP specifically requires financial institutions to maintain procedures concerning client identification, record keeping and internal reporting; to establish internal controls to assist in preventing money laundering; to make staff aware of the requirements of the Code of Practice and the firm’s compliance procedures; to train staff appropriately; to maintain a register of money laundering enquiries; and to appoint a compliance officer, approved by the managing director of the FSC. What is lacking is complete and thorough implementation and on-site and off-site supervision to ensure that regulated persons are in fact adhering to the requirements and have incorporated the required internal controls.

Financial institutions are required to establish and maintain internal procedures to prevent, detect, and report suspicious transactions. AML/CFT programs include internal procedures and policies and ongoing employee training. Institutions must perform their duty of diligence by having in place systems which enable them to verify the true identity of customers, keep records for the prescribed period of time, recognize and report suspicious transactions to the reporting authority, liaise closely with the RA on matters concerning vigilance policy and systems, train key staff, and ensure that internal auditing and compliance departments regularly monitor the implementation and operation of vigilance systems. Vigilance policy aims at guarding an institution against its business being used for laundering and/or the committing of any AML/CFT offence by the institution itself or its key staff.

The AMLCP requires that financial institutions appoint a senior staff to have the responsibility for the vigilance policy and vigilance systems, to act as internal focal point for receiving notification of suspicions, to decide whether suspicious transactions should be reported, and to report to the RA.

The Guidance Notes prescribe that key staff i.e. any employee of an institution who deals with customers/clients and/or their transactions should receive training. While each institution should design its training program in accordance with its particular commercial requirements, this training will generally aim at ensuring that key staff will react effectively to suspicious transactions and circumstances by reporting them to the relevant personnel. Guidance Notes require that at least, key staff should receive a copy of their company’s current instruction manual(s) relating to entry, verification, and records based on the recommendations contained in the Guidance Notes. Training should also include making the key staff fully aware of the AML/CFT legal and regulatory framework. Refresher training is prescribed in the Guidance Notes to ensure that key staff remain familiar with and are updated as to their responsibilities.

Financial institutions are required to ensure that their foreign branch and subsidiaries observe appropriate AML/CFT measures. The Guidance Notes specifies that where a group whose headquarters are in the BVI operates branches or controls subsidiaries in another jurisdiction, it should ensure that such branches or subsidiaries observe the Guidance Notes or adhere to local standards at least equivalent to the Guidance Notes, and it should keep all such branches and subsidiaries informed as to current group policy. Such branches or subsidiaries should also inform themselves as to their own reporting body and procedures for disclosing of suspicious transactions.

Recommendations and Comments

The AMLCP requires the appointment of a compliance officer responsible for ensuring compliance with the provisions of the BVI AML/CFT legal and regulatory framework, and prepare and submit to the FSC written reports on the financial institution’s compliance to the AMLCP or any other relevant law or directive. This compliance officer may be the same person as the reporting officer. With respect to the implementation of this provision, the FSC advises that an application form for the approval of appointment of compliance officers has been drafted but not finally approved yet. It is advisable that the FSC finalizes the application process. Next steps should involve enacting guidelines for compliance officers, and possibly organizing targeted training for them.

Although the general framework for instructing financial institutions to set up internal vigilance systems and policies is sufficient and well defined, there seems to have been limited attention given by the FSC to the assessment of the efficiency of these systems and of the overall compliance to the AMLCP and Guidance Notes. In addition to due diligence audits which empower the FSC to conduct inspections to verify compliance with the AML/CFT Code, laws or directives, thoughts should be given to the possibility for the FSC to prescribe audit procedures for internal and/or external audit of AML/CFT. See Recommendation under 2.2/I.

Implications for compliance with the FATF Recommendations 19, 20

While the AMLCP and the Guidance Notes have imposed legal requirements on financial institutions to develop internal control programs, the level of implementation of these requirements by financial institutions, particularly outside of the banking sector does not appear to be sufficient and the effectiveness of financial institutions’ programs is underdeveloped. Therefore, compliance with FATF Recommendation 19 is not complete. Of ongoing concern is that the BVI authorities do not verify that financial institutions ensure that the principles for internal controls are also applied to branches or subsidiaries outside of the jurisdiction, although the Guidance Notes do address this to some degree. Unlike other measures in the Guidance Notes, this requirement is not specifically tied to any provision in the AMLCP or the FSCA, so there is some concern that the application of AML/CFT controls to branches and subsidiaries operating abroad is not sufficiently defined in an enforceable legal instrument.

VII—Integrity standards (compliance with Criteria 62 and 63 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criterion114 for the securities sector)

Description

Fit and proper tests are required for obtaining and maintaining licenses for regulated entities, including banking and trust companies, company managers, and for insurance, although mutual fund managers and investment managers are not currently subject to a fit and proper test. Section 16 of the FSCA empowers the Licensing and Supervisory Committee of the FSC to supervise regulated persons to ensure that they continue to satisfy the fit and proper criteria for the conduct of financial services business. The FSC advises that applications for licenses must be renewed annually.

Details on the scope of fit and proper requirements for each sector can be found in the BCP, IAIS, and IOSCO detailed assessments. The detailed review of best practices for trust and company services providers contains discussion on best practices and the requirements for fit and proper that are applicable to company managers.

The BVI authorities are aware of the vulnerabilities that exist with respect to the misuse of corporate vehicles, particularly companies with bearer shares. The current KYC requirements provide some mechanisms to obtain necessary information about beneficial owners and the principals of corporate entities.

Analysis of Effectiveness

The BVI has an adequate and established system of requiring fit and proper tests for directors and senior management of financial intermediaries that is applied to banks, company managers, and insurance, although mutual funds managers and investment managers are not currently covered. The FSC has broad powers to assess the fitness and properness of individuals, including aspects of reputation and prior criminal record. Licensing for regulated entities is renewed yearly and the FSC may deny renewal on a wide variety of factors, including whether the license has been properly used.

There is some concern in the BVI about whether the companies registered, particularly those with bearer shares, are being misused for criminal purposes. As a result, the authorities are moving forward with a legislative proposal to immobilize bearer shares by requiring these be deposited with recognized financial institutions either in the BVI or abroad.

Recommendations and Comments

Fit and proper requirements should be required for mutual fund managers and investment advisers, and broker/dealers, as is contemplated to be introduced.

The proposal for immobilization of bearer shares should be enacted and measures should be developed to ensure that company managers and other financial intermediaries transacting financial business for companies ascertain that the beneficial owners of these companies can be ascertained through this immobilization mechanism.

Implications for compliance with FATF Recommendation 29

Fit and proper tests must be applied to mutual fund managers and investment advisers for compliance with FATF Recommendation 29. FSC supervision of the application of the fit and proper tests appears to be generally adequate and ongoing monitoring is achieved by the annual requirement for relicensing. Nevertheless, compliance with FATF Recommendation 29 should be enhanced by incorporating supervision for fit and proper into the on-site and off-site inspection procedures.

VIII—Enforcement powers and sanctions (compliance with Criteria 64 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 93-96 for the banking sector and criteria 115-117 for the securities sector)

Description

Enforcement tools available to the FSC are broadly provided in the FSCA. A particular strength is that the enforcement actions in the FSCA may be applied for failure to follow the Guidance Notes. Section 37(1)(a)(ii) of the FSCA empowers the FSC to take enforcement action against a regulated person if the person has contravened or is in contravention of the AMLCP or such other enactments, or guidelines relating to money laundering.

Section 38 authorizes the FSC to at any time revoke or suspend the license or certificate of a regulated person if the FSC is entitled to take enforcement action under Section 37.

Section 39 authorizes the FSC to apply for a protective order preventing the regulated person or any person from transferring, disposing, otherwise dealing with property, or to appointing an administrator to take over and manage the financial services business, among other actions.

Section 40 authorizes the FSC to issue a directive to a regulated person directing that person to cease engagement in any class or type of business, or not to enter into any new contracts for any class of business.

Analysis of Effectiveness

The legal provisions for sanctions and enforcement are adequate, but at this stage of implementation have not been applied for violations relating to ML/FT. Procedures for the FSC to invoke the enforcement tools and guidance on the application of specific sanctions to particular types of misconduct or to failure to comply remain incompletely defined.

Recommendations and Comments

Enforcement tools available to the FSC are compliant. Effective implementation of enforcement tools will require additional resources and development of internal procedures within the FSC, as well as additional training.

IX—Cooperation between supervisors and other competent authorities (compliance with Criteria 65-67 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 97-100 for the banking sector and criteria 118-120 for the securities sector)

Description

Currently, the FSC’s Division for Legal and Enforcement is not adequately staffed, including vacancies for the Director, two deputy directors, and one enforcement officer. (Appendix 9 of the organizational chart of the FSC). Clearly, staffing needs to be more robust to effectively implement the requirements of the PCCA, AMLCP, and the Guidance Notes. Compliance levels within the financial sector cannot be properly monitored or ascertained until staffing is complete and such staff is properly trained. The managing director of the FSC advises that a number of these vacant positions will be filled in early 2003.

Section 29 of the FSCA provides for gateways of disclosure and gathering of information. The FSC has authority to disclose any information, document, record, statement, or thing to other regulatory, judicial or law enforcement authorities both locally and overseas for purposes of a legal assistance in the investigation of a criminal activity upon prior written consent of the Board of the FSC. No court authorization is necessary.

The FSIC governs the supervisory sharing of information with foreign regulatory authorities. The provisions in the FSIC must be read in conjunction with sections 30 and 32 of the FSCA. As stated above, Sections 4 and 5 of the FSIC allow for the sharing of records in the possession of the FSC with foreign authorities. The FSC advises that the procedures for exchange of information are formalized in the form of an undertaking to ensure compliance with the two laws on the subject.

As a matter of practice, the FSC advises that all request received that reveal sufficient detail are immediately treated as formal requests for information and at which point the requesting authority is asked to sign the undertaking and return the original. Concurrently, FSC will use its compulsory powers under Sections 30 and 32 of the FSCA to obtain the necessary information. When the undertaking is signed, the information will be forwarded. The undertaking sets out the controls governing the requests including an appendix excerpting the relevant provisions of the law. As a general matter, the FSC advises that the party receiving the information from the FSC requires only the FSC Board’s consent in order to further disclose the information. These further use provisions are set out in Sections 29 and 49 of the FSCA.

If requests for information do not contain sufficient detail, FSC treats these as informal requests and will send the requestor all publicly available information it has. The requestor has the opportunity to provide more specific details in order to obtain non-public information under the formal process.

At the time of the mission, only the managing director and the deputy director were authorized to decide upon requests, however, currently the director and deputy director of the Legal Services Division may also decide.

The FSC advises that all requests are initially responded to within 1 week. Non-formal requests are completed within 1–2 weeks while formal requests are completed on average, within 2–3 months. From January 2002 through November 2002, the FSC had processed 9 of 13 formal requests and had completed a total of 30 informal requests.

Additional specific provisions for information sharing with domestic competent authorities are found in Section 70(2) of the IA, Section 20 of the CMA, and Section 24 of the BTCA. These are discussed in detail in the BCP, IAIS, and IOSCO detailed assessments.

The Financial Services (International Cooperation) Act Sections 4, 5, and 7 provide for information sharing with counterpart prudential supervisors. The FSC advises that generally they regularly provide more information than they request. See also criterion 66.

Analysis of Effectiveness

Legal requirements for cooperation at both the domestic and international levels are sufficient to efficiently ensure the exchange of information necessary. On the domestic side, implementation of cooperation with domestic competent authorities, including the Police and the AGC should be reviewed and experience in invoking the cooperative measures should inform potential enhancements to ensure that the broadest possible cooperation is being used. Efforts should ensure that the broadest exchange of information is executed, including the exchange of confidential supervisory information subject to adequate protections on confidentiality and data protection.

Recommendations and Comments

Unfilled positions in Legal and Enforcement should be filled immediately with qualified staff and training should begin immediately to ensure that the enforcement tools and sanctions available to the FSC are meaningfully invoked.

Implications for compliance with FATF Recommendation 26

The legal framework confers broad authority on the FSC to ensure that financial institutions subject to the AMLCP and the Guidance Notes adopt sufficient, in depth policies for internal controls, and to guard against money laundering. The AMLCP provisions are sufficiently detailed to permit the FSC to exercise a strong hand in ensuring that financial institutions have both adequate polices and procedures in place, follow these procedures, and guard against money laundering. At this stage, the FSC must focus on the effectiveness of the internal controls adopted by supervised financial institutions.

View Table

Table 6.

Detailed Assessment of the Legal and Institutional Framework for Financial Institutions and its Effective Implementation

I—General Framework (compliance with criteria 43 and 44)

Description

There is no confidentiality law or secrecy provision in legislation that would inhibit the implementation of necessary preventive measures for financial institutions.

The FSC is responsible for ensuring the implementation of AML/CFT requirements by all financial institutions, pursuant to Sections 4, 37 and 38 of the FSCA. The PCCA and AMLCP are included into the schedule of the FSCA to ensure the coverage of AML/CFT. Specifically, Section 37(1)(a)(ii) incorporates both the AMLCP and any guidelines issued, including the Guidance Notes.

The FSC is responsible for implementation across all financial sectors covered by the AMLCP, including, inter alia, banks and trust companies, mutual funds and mutual fund managers, insurance business, company management, money remitters or check encashment, and any activity in which money belonging to a client is held or managed by lawyers or accountants. Under Section 38 of the FSCA, the FSC has the authority to revoke licenses for violations of the AMLCP.

Direct, on-site supervision has been in place for trust and company service providers and is being implemented more fully for banking, insurance, mutual funds and mutual fund managers, but the implementation has not been completed and the level of compliance cannot be readily ascertained as yet. Additional staffing resources and adaptation of inspection manuals for AML/CFT measures will be needed. While money remitters are not yet directly subject to licensing and supervision, a bill has been proposed to bring money remitters under the umbrella of FSC supervision, which would include supervision and inspection for AML/CFT preventive measures.

Analysis of Effectiveness

The general framework for AML compliance is contained in the AMLCP and the Guidance Notes, which provide for customer due diligence measures (KYC), record keeping, ongoing monitoring of relationships and transactions, and suspicious transaction reporting. They also impose minimum requirements for internal procedures, controls, and audit. The AMLCP and Guidance Notes provide sufficiently detailed legal requirements and clear instructions for reporting persons to establish effective internal controls and achieve compliance. The AMLCP and Guidance Notes apply consistently across a broad number of financial intermediaries which include banks and trust companies, insurance business, mutual funds and mutual fund managers, company managers (either eligible introducers or trust companies), money remitters, and any activity in which money belonging to a client is held or managed by an attorney or accountant.

The FSC is the supervisory authority vested with the responsibility for ensuring adherence to the AMLCP and the Guidance Notes. The FSC has direct prudential supervisory authority, including assessment of fit and proper tests for management of banks and trust companies, insurance, mutual funds and mutual fund managers, and administrators. Currently, money remitters are not licensed and supervised. The FSC has on-site inspection powers as well as broad powers for approval of compliance officers. The FSC is in the process of completing the necessary inspection manuals and procedures needed to exercise its full range of supervisory functions.

With respect to implementation, the strongest tool, on-site supervision, as such, is not yet fully in place, although there are visits to regulated persons, and questionnaires for compliance are required as part of these visits. However, transaction testing and file verification is not fully implemented. As a result of the stage of development of the FSC’s supervisory tools, the effectiveness of implementation within the sectors cannot be accurately assessed. The FSC believes there is a high level of compliance across sectors, and that the industries have been responsive to adopting internal controls policies and procedures and adhering to KYC requirements.

Of some concern is the reliance on eligible introducers (composed in the BVI of registered agents as well as lawyers and other firms both domestic and abroad) to conduct KYC on behalf of BVI financial intermediaries. Further verification is needed to ascertain whether the supervisory controls in place are sufficient to test whether the eligible introducers are meeting the statutory requirements to qualify under the AMLCP, and adherence of the eligible introducers in performing the KYC requirements.

Money remitters are not subject to licensing and supervision, so implementation through supervisory measures is not completed as to these entities. Implementation in money remitters is therefore noncompliant.

Recommendations and Comments

Implementation must be completed and on-site inspections should be regularly used to verify the compliance programs for AML/CFT. Specific transaction testing should be implemented as part of both on-site inspection and as a requirement for internal audit testing by reporting persons. Supervisory controls should pay particular attention to adherence to KYC requirements by eligible introducers.

As an added measure to move forward with implementation, the FSC should consider requiring external auditors of financial intermediaries to provide certifications on AML/CFT compliance and to make direct reports to the FSC concerning AML/CFT internal controls and procedures, as well as specific file and transaction testing. Such a requirement will require legislative changes which are not in the control of the FSC to authorize direct communication between the FSC and external auditors, impose specific instructions for auditors, and allow for pre-audit and post-audit meetings between the FSC and external auditors.

Implications for compliance with FATF Recommendation 2

Financial secrecy is not an impediment to the implementation of FATF Recommendations concerning preventive measures for financial institutions, and therefore, the BVI laws and institutional framework are designed in a manner sufficient for compliance with FATF Recommendation 2.

II—Customer identification (compliance with criteria 45-48 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 68-83 for the banking sector, criteria 101-104 for the insurance sector and criterion 111 for the securities sector)

Description

The FSC advises that anonymous accounts are not authorized in the BVI.

Reporting parties are required to identify their customers as soon as reasonably practicable after a continuing business contact is first made as well as occasional customers upon the production of satisfactory evidence of their identity (Paragraphs 4 and 5 of AMLCP). There is no threshold for requirements of customer identification in one-off transactions. Paragraph 4(5) of the AMLCP provides reverification of customer identification is required when doubts arise during the course of the relationship and additionally Paragraphs 4 provides that when satisfactory evidence is not obtained, the business relationship or transaction shall not proceed any further.

For introduced business, paragraph 6 of the AMLCP requires eligible introducers to conduct due diligence and to maintain records and when requested to supply the verification of the identity to the regulated persons in the BVI. When satisfactory evidence of identity is not obtained or produced, the business transaction or relationship shall not proceed any further (Paragraph 6(7) AMLCP). Appendix A of the Guidance Notes provides guidelines and information to be provided for introduction of clients by local reliable introducers. As a result, the regulated person does not have direct responsibility for conducting customer due diligence of introduced business, and may not know if the due diligence has been conducted properly unless the regulated person affirmatively requests the information.

Section 4(1) of the AMLCP requires establishment of identification procedures in relation to new and continuing business relationships, but Section 4(2) and 4(3) contain exceptions to the need for verification of identity under certain circumstances. Section 4(2) provides that the verification procedures do not apply if there are reasonable grounds for believing that the applicant for business is a regulated person, or an authorized financial institution in a FATF or CFATF country with AML/CFT laws at least equivalent to the BVI, or is an attorney or accountant. Section 4(3) provides that the identification procedures are not required if there are reasonable grounds for believing that the applicant for business acts in the course of a business relation to which a regulatory authority outside the territory exercises regulatory functions and is based in a FATF or CFATF country with AML/CFT laws at least equivalent to the BVI.

Paragraph 66 of the Guidance Notes provides that a valid passport, national identity card, armed forces identity card, or drivers license bearing a photograph is sufficient to establish the identity of individuals. Paragraph 72 of the Guidance Notes provides for documents that can verify the identity of companies, such as a certificate of incorporation, the name and address of beneficial owners or persons on whose instructions the signatories on the account are empowered to act, and memoranda and articles of association, among others. In addition, a resolution, bank mandate, signed application form or any valid account-opening authority, and copies of powers of attorney, among other documents, are acceptable.

The FSC advises that one bank has numbered accounts. However, this is not a commercial bank and the accounts require customer identification and due diligence in accordance with the AMLCP.

While only currently included in inspection procedures for trust and company service providers, the FSC advises on-site inspections of banks, insurance, and mutual funds will conduct sampling of customer identification requirements.

Paragraph 31 of the Guidance Notes addresses beneficial ownership information, by requiring that an institution carry out verification, which requires intermediaries to read the term “principals” in the widest possible sense, including beneficial owners. In addition Guidance Notes paragraphs 35 and 37 require verification of partnerships’ and companies’ ultimate beneficial owners. As a general matter, the FSC advises that satisfactory evidence of identity necessarily requires obtaining the true beneficial ownership information. Paragraph 41 of the Guidance Notes also provides that where an institution suspects that there may be an undisclosed principal, it should monitor the activities of the customer to ascertain whether the customer is in fact merely an intermediary.

If there are doubts concerning the true beneficial owner, Guidance Notes Paragraph 77 provides authority to suspend account relationships and funds held to the applicant’s order (if any) may be returned until the customer provides sufficient information concerning the beneficial ownership.

Supervision of implementation has not yet been completed, and some concerns remain about whether beneficial ownership information is regularly obtained, particularly when the due diligence is being carried out by eligible introducers. Inspection procedures under development should assess whether information is obtained.

Paragraph 100 of the Guidance Notes requires that in the case of electronic transfers, institutions retain records of payments made with sufficient detail to enable them to establish the identity of the remitting customer and the identity of the ultimate recipient. Although money remitters are subject to the AMLCP, these are not regulated on a prudential basis. There is a proposed bill to regulate money remitters, including licensing and supervision.

Analysis of Effectiveness

The AMLCP and Guidance Notes set standards for financial institutions with regard to knowing the identity of all customers. Financial institutions are required to identify their customers and to record their identity. The AMLCP stipulates identification procedures in relation to new and continuing business relationships, as well as for one-off transactions and for introduced persons. Verification subjects encompass individuals, partnerships and companies (including corporate trustees), intermediaries, and other institutions (such as associations, foundations, charities, etc.).

The individual subject to diligence may be the account holder himself or one of the principals to the account. The Guidance Notes specify that an individual trustee should be treated as a verification subject unless the institution has completed verification of that trustee in connection with a previous business relationship or one-off transaction and termination has not occurred. When the applicant for business consists of individual trustees, all of them should be treated as verifications subjects (unless they have no individual authority to operate a relevant account or otherwise to give relevant instructions). Likewise, all partners of a firm which is an applicant for business, shall be treated as verification subjects. In the case of limited partnership, the general partner is to be treated as the verification subject and limited partners need not be verified unless they are significant investors. Unless a company is quoted on a recognized stock exchange or is the subsidiary of such a company or is a private company with substantial premises and payroll of its own, steps must be taken to verify the company’s underlying beneficial owner(s), including any person(s) on whose instructions the signatories of an account, or any intermediaries instructing such signatories, are accustomed to act.

The institutions undertaking verification should establish to their reasonable satisfaction that every verification subject relevant to the application for business actually exists and all the verification subjects on joint applicants for business should normally be verified. Institutions should carry out verification in respect of the parties operation the account.

Where there are underlying principals, the true nature of the relationship between the principals (including beneficial owners, settlers, controlling shareholders, directors, major beneficiaries, etc.) and the account signatories must also be established and appropriate enquires performed. It would be advisable for the Guidance Notes to specify that all information obtained on customer due diligence undertaken for introduced business be transmitted to the regulated entity for confirmation and to require that the customer identification information be accessible in the BVI offices of regulated entities.

Risk-based procedures for banking KYC are not sufficiently developed at this stage. Specific procedures to incorporate the requirements of the Basel Customer Due Diligence Paper, including provisions for Politically Exposed Persons (PEPs) and enhanced procedures for higher risk customers and private banking are not in place.

Recommendations and Comments

Since implementations has not been achieved yet, it remains difficult to assess the level of compliance in the performance of KYC policy. When on-site inspections are fully implemented, the FSC advises that samplings of customer identification will be undertaken. Special attention should then be given to assess whether compliance is sufficient with respect to identification of the beneficial owner(s), and inspection procedures should provide for an assessment of the quality and validity of information obtained.

The identification procedures for applying for business which is introduced to a person by a third party (the Introducer) require eligible introducers to conduct due diligence, including establishing and maintaining identification procedures as soon as reasonably practicable after contact is made between the relevant person and the introducer. Implementation of inspections done by the FSC should help determine whether the diligence performed by the introducers is satisfactory.

When money is remitted through a financial institution, the institution is required to retain records of payments made with details sufficient to establish the identity of the remitting customer and as far as possible the identity of the ultimate recipient. However, independent money remitters are not subject to regulation yet, although the assessment team has been advised that a bill has been drafted to regulate the sector. Until it is enacted, there is no regulatory requirement to include originator information on fund transfers and regulated messages. The bill should include clear instruction regarding mandatory information which needs to be attached to fund transfers, and in particular the name, address, and account number (when being transferred from an account). Attention should be given to the FATF special recommendation VII and its interpretative note, once it is adopted.

Implications for compliance with FATF Recommendations 10, 11, SR VII

Legal provisions in the AMLCP and in the Guidance Notes provide details and requirements sufficient to prevent financial institutions from keeping anonymous accounts or accounts in obviously fictitious names, and require them to obtain information concerning the true identity of the customer. As a result, the legal provisions, as written, are sufficient to achieve compliance with the minimal requirements of FATF Recommendations 10 and 11. However, implementation is lagging, and to date the FSC is not yet conducting substantive inspections on compliance with KYC obligations in the financial sectors. Information about beneficial ownership is, thus, lacking in many cases. Accordingly, the institutional measures and implementation for KYC needs to be immediately and significantly improved to reduce the risks of misuse of BVI financial service providers. Of some concern is the reliance on eligible introducers to conduct KYC on behalf of BVI financial intermediaries. Verification is needed to ascertain whether the supervisory controls in place are sufficient to test whether the eligible introducers are meeting the statutory requirements to qualify under the AMLCP and their adherence in performing KYC requirements.

III—Ongoing monitoring of accounts and transactions (compliance with Criteria 49-51 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 84-87 for the banking sector, and criterion 104 for the insurance sector)

Description

Guidance Notes Paragraphs 78 through 95 detail recognition of suspicious customers and transactions, and the reporting of suspicions both to the intermediaries Reporting Officer and reporting to the Reporting Authority. Appendix D of the Guidance Notes further detail examples of suspicious transactions for money laundering, which while detailed, are not intended to be exhaustive. These suspicious transactions cover using cash transactions, bank accounts, investment related transactions, offshore international activity, financial institutions’ employees and agents, unsecured lending, and sales and dealings staff. There are specific guidelines for new business and intermediaries, and for dealing patterns of abnormal transactions and settlements (payment, registration and delivery and disposition). These guidelines also require scrutiny of company formation and management that involve suspicious circumstances relating to the customer’s behavior, suspicious circumstances for groups of companies, and potentially suspicious secrecy.

The RA and FSC advise that there is a high level of compliance with these Guidance Notes and that the industries are aware of the need for ongoing monitoring and detection of suspicious transactions. Nevertheless, the low level of STRs filed in the jurisdiction given the size of the financial community calls into question whether implementation has been fully achieved. When inspection procedures and manuals are completed and on-site inspections have begun, authorities will have a better understanding of the true level of understanding of, and compliance with, the obligations to monitor relationships.

The AMLCP and Guidance Notes do not identify jurisdictions for which AML/CFT systems are weak. The FSC advises that the baseline level of scrutiny required under the AMLCP and Guidance Notes is sufficient to alert financial intermediaries of the need to monitor independently developments such as awareness of the FATF NCCT lists. The FSC further advises that if needed alerts on jurisdictions can be issued by the RA, however, there have been no specific alerts concerning jurisdictions with weak AML/CFT systems and the need for additional scrutiny.

The Guidance Notes do not yet specifically require for enhanced scrutiny for wire transfers that do not contain originator information. When the FATF completes the Interpretive Note on Special Recommendation VII, the authorities should consider a corresponding issuance alerting financial intermediaries of the need for enhanced scrutiny in accordance with the conclusions of the Interpretive Note.

Analysis of Effectiveness

Financial institutions are required to pay special attention to suspicious customers/transactions. The AMLCP and Guidance Notes specify when financial institutions must report unusual or suspicious transactions to the supervisor or other authority. Both the Code and the Notes also set regulations and guidelines issued to financial institutions regarding the recognition of unusual or suspicious transactions.

The Guidance Notes define a suspicious transaction as one which is inconsistent with a customer’s known legitimate business or activities or with the normal business for that type of account. Therefore, an important precondition of recognition of a suspicious transaction is for the institutions to know enough about the customer’s business to recognize that a transaction is unusual. The Guidance Notes classify the suspicious transactions into the following categories: any unusual financial activity of the customer in the context of his own usual activities; any unusual transaction in the course of some usual financial activity; any unusually-linked transactions; any unusual employment of an intermediary in the course of some usual transaction or financial activity; any unusual method of settlement; and unusual or disadvantageous early redemption of an investment product. Examples of common ML transaction typologies are given in appendix D attached to the Guidance Notes.

Recommendations and Comments

The Guidance Notes indicate that the Reporting Officer “should be well versed in the different types of transactions which the institution handles and which may give rise to opportunities for money laundering.” The FSC and the RA advise that regular contacts are maintained with the financial industry to ensure that there is a thorough knowledge and understanding of the evolving patterns and trends of money laundering. The RA advise that they meet with the representatives of professional associations, or with the financial institutions on a individual basis, to exchange views on the issue. However, there has been no update of the ML transactions typologies since the Guidance Notes were issued. RA could consider supplementing these initial typologies with new trends and patterns, as they are emerging regionally and are discussed at C-FATF meetings, or have been detected on the BVI territory.

The AMLCP provides for a number of exemptions to the identification duties when the applicant for business is a regulated person or an authorized financial institution in a country or territory which is a member of the FATF or CFATF and which has AML laws at least equivalent to those of the BVI, or is an Attorney-at-Law or an accountant. There are no written guidelines to give special attention to business relations and transactions with persons in jurisdictions that do not have adequate systems in place to prevent or deter ML or FT. However, the FSC advises that financial institutions are aware of the necessity to scrutinize customers relationships or transactions in and out from jurisdictions that have been identified as weak in the international AML/CFT framework, in particular for those listed as non-cooperative countries and territories by the FATF.

Implications for compliance with FATF Recommendations 14, 21, 28, SR VIII

The level of scrutiny required by financial institutions, while in itself is adequate, is not sufficiently supported by a requirement to file an STR because financial institutions have the option of rejecting the transaction and returning funds to the client. The basis by which financial institutions examine the background and purpose of transactions is not sufficiently developed to allow for meaningful scrutiny or written analysis by the financial institutions. Therefore, compliance with FATF Recommendation 14 needs improvement.

IV—Record keeping (compliance with Criteria 52-54 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criterion 88 for the banking sector, criteria 106 and 107 for the insurance sector, and criterion 112 for the securities sector)

Description

Paragraphs 7 and 9 of the AMLCP require financial institutions to maintain records on customer identity for at least five years. Paragraph 7 of the AMLCP requires that the records maintained indicate the nature of the evidence obtained and comprise a copy of the evidence, or where this is not reasonably practicable, contains such information as would enable a copy of the evidence to be obtained. Paragraph 9 of the AMLCP requires retention of records for five years from the date when all activities relating to an occasional transaction were completed, or when the business relationship ended, or where the business relationship was not ended, the last transaction was carried out.

Section 35(2) of the FSCA authorizes the FSC to examine and make copies of documents belonging to financial intermediaries that relate to the carrying out of financial services business by the relevant person. Paragraph 97 of the Guidance Notes authorizes the RA to request an institution keep records for more than the five year period if an investigation into a suspicious customer or transaction has been initiated.

Paragraph 8 of the AMLCP requires financial intermediaries to maintain records of all transactions carried out or on behalf of a customer for at least five years. Such records must be sufficient to identify the source and recipient of payments from which investigating authorities will be able to compile an audit trail for suspected money laundering. See also criterion 52. Paragraph 96 of the Guidance Notes provides further details on the audit trail and requirements for maintaining entry records, ledger records, and supporting records. Paragraphs 98 through 103 of the Guidance Notes detail the contents of the records to be maintained, including transaction specific records including details of personal identity and details of securities and investments transacted.

Section 35 of the FSCA authorizes the FSC to inspect and obtain all records necessary and Section 36 of the PCCA authorizes law enforcement to obtain court orders for the production of material related to the proceeds of criminal conduct. With respect to records relating to FT, the governor is vested with the authority to direct any person to furnish to him any information in his/her possession or control, or to produce any document in his/her possession of control, which the governor may require for the purpose of securing compliance with or detecting evasion of the Statutory Order 3366.

Analysis of Effectiveness

Financial institutions are required to keep records in order to facilitate the investigation of any audit trail concerning the transactions of their customers. In particular, institutions should keep all account opening records, including verification documentation and written introductions. They should also keep all accounts ledger records, and all records in support of ledger entries, including credit and debit slips and checks. Records relating to verification generally comprise a description of the nature of all the evidence received relating to the identity of the verification subject, and the evidence itself (or a copy of it or, if that is not readily available, information reasonably sufficient to obtain such a copy).

Records must be kept in a “readily retrievable” form, which may consist of an original hard copy, a microform, or electronic data. Records held by third parties would not qualify as readily retrievable unless the third party itself is an institution that is able and willing to keep such records and disclose them when required.

Recommendations and Comments

The BVI is compliant with respect to keeping of records. Material is to be made available for law enforcement purposes upon an order obtained from the court (PCCA), and for the purposes of the prudential supervision of a financial services business carried on in or from within the BVI, the FSC may examine and make copies of such records.

Implications for compliance with FATF Recommendation 12

The legal requirements for record keeping allow for recoverability of records and ensure that the records maintained are sufficient to permit reconstruction of individual transactions for adequate compliance with FATF Recommendation 12.

V—Suspicious transactions reporting (compliance with Criteria 55-57 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 101-104 for the insurance sector)

Description

Suspicious transaction reporting for money laundering is voluntary under the PCCA, and when an STR is filed with the RA, the person filing has a presumption of protection from criminal prosecution under the money laundering statutes. Filing of an STR mitigates the risk of that the reporting party will be implicated in a criminal prosecution for ML. In addition, pursuant to Statutory Order 1822, Article 12 and Schedule 1, impose mandatory reporting of FT offenses because failure to report knowledge or a reasonable grounds to suspect that came to the person in the course of a business in a regulated sector to a constable or a nominated officer, will result in criminal liability under the Statutory Order. Paragraphs 88 through 90 of the Guidance Notes indicate that financial institutions “should” file when information substantiates suspicion of laundering. This is not interpreted as elevating STR filing to a mandatory level. Further, the Guidance Notes paragraphs and the AMLCP only require financial institutions to adopt and implement a policy to report transactions that raise suspicions of money laundering. This means that the financial institution need not file any STR in cases where it suspects that the assets are criminal proceeds providing there is no suspicion of money laundering. Next, both the AMLCP and the Guidance Notes only require the financial institutions to adopt and implement a policy to report STRs that have in fact been completed. This means that the financial institution need not file an STR in cases where a transaction is suspicious providing that it does not complete the transaction.

Paragraph 14(1) of the AMLCP requires STRs be filed with the RA and requires reporting parties to have written internal reporting procedures that enable their directors, partners, management, and key staff to know to whom they should report any knowledge or suspicion of money laundering. The procedures should ensure that there is a clear reporting chain under which suspicions of money laundering will be passed to the Reporting Officer (RO). However, the AMLCP does not specifically require that reporting entities establish procedures for management and key staff to identify suspicious transactions or to report such transactions to the RO.

Nevertheless, Paragraph 84 of the Guidance Notes provides that institutions should ensure that key staff know to whom their suspicions should be reported and that there is a clear procedure for reporting such suspicions without delay. Appendix E of the Guidance Notes suggest a format for internal reporting and Appendix F sets forth the standard form for reporting to the RA.

Reporting persons are protected under Section 28(2)(a) of the PCCA, which provides that where a person discloses to the RA a suspicion or belief that any funds or investments are derived from or used in connection with criminal conduct, or discloses to the RA any matter on which such a suspicion or belief is based, the disclosure shall not be treated as a breach of any restriction on the disclosure of information imposed by statute or otherwise and shall not give rise to any civil liability.

Section 31 of the PCCA prohibits tipping off concerning an investigation that is being or is about to be conducted into money laundering when such disclosure to any other person information is likely to prejudice that investigation or proposed investigation. Section 31 is broadly worded and applies as well to the authorities, so that unjustified or unauthorized disclosures of information would constitute an offense.

Analysis of Effectiveness

Currently, suspicious transaction reporting is voluntary and filing of STRs provides a safe harbor from liability for ML for the reporting person. While this has been sufficient for generating STRs for obviously suspicious transactions and activities, there may be some gaps in filing of reports for which the situation is questionable but the reporting party has refused the transaction rather than file an STR. On a systemic level, opportunities for detecting suspicious or unusual activities in this vein may be lost. Tipping off is prohibited under the PCCA. The law does not provide for the RA or other competent authority to order blocking or freezing of transactions when a STR is filed. Authorities are hesitant to move toward such powers because of questions about becoming “constructive trustees” for the funds and being subject to liability for loss or damage for blocked or frozen transactions. While this concern is valid in a common law jurisdiction, temporary freeze measures are effective in other common law jurisdictions and corresponding provisions for immunity from liability can be enacted that provide a modicum of protection.

Authorities advise that mandatory STR reporting is contemplated.

Recommendations and Comments

To fully capture potential unusual and suspicious transactions reporting should be mandatory.

Increasing reporting that results will require additional specialized guidance on typologies and trends, and may require additional requirements for financial intermediaries to adapt their internal reporting procedures and controls.

Implications for compliance with FATF Recommendations 15, 16, 17, 28

STR reporting in the BVI is relatively weak and not sufficient to inform the FIU and law enforcement about potential criminal activities that may be misusing the financial sector. Of greatest significance is the voluntary nature of the suspicious transaction reporting requirement. Legal protections for financial institutions, directors and staff for the reporting of suspicious transactions, should be strengthened to provide an affirmative protection from liability for disclosing information through an STR, and for responding to requests for further information in support of the STR. Moreover, there should be a specific authority of the RA or the Police FINU to block transactions or accounts for a limited period of time after a SAR is received. The authorities’ arguments concerning the creation of a constructive trust through such authorities are not persuasive—such authority can be designed in legislation to limit the liability for direct and consequential damages for any blocking.

VI—Internal controls, Compliance and Audit (compliance with Criteria 58-61 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 89-92 for the banking sector, criteria 109 and 110 for the insurance sector, and criterion 113 for the securities sector)

Description

Programs for internal controls in financial institutions are provided for directly in the AMLCP, and are sufficiently detailed and clear to require financial institutions to construct written policies for suspicious transaction detection and for ensuring compliance with requirements in the AMLCP. Specifically, Paragraph 14 of the AMLCP requires written internal procedures for suspicious transaction detection and reporting. Paragraph 14 of the AMLCP also contemplates designation of a Reporting Officer, who is responsible for receiving suspicious reports internally and reporting STRs to the RA and who may be the same person as the compliance officer under Paragraph 12 of the AMLCP.

Paragraph 15 of the AMLCP requires relevant persons to provide training for all directors, partners, all persons involved in management, and all key staff to ensure they are aware of the PCCA, regulations made there under, and the AMLCP. Paragraph 16 of the AMLCP requires training for senior and specialist staff regarding the relevant person’s internal policies and procedures to prevent money laundering, its customer identification, record keeping, and other procedures, and the recognition and handling of suspicious transactions. Paragraph 17 requires refresher training once every year to remind key staff of their responsibilities and to make them aware of any changes in the law relating to money laundering and the internal procedures of the relevant person.

Guidance Notes 105 through 107 provide further details on the duty to ensure that key staff receive sufficient training to alert them to the circumstances whereby they should report customers/clients and all their transactions to the internal compliance officer. This includes basic elements of the legislative and regulatory framework as well as the recognition and handling of suspicious transactions, and vigilance policies on systems. Paragraph 106 reminds key staff of the personal legal liability for failure to perform the duty of vigilance and to report suspicions appropriately. Paragraph 107 sets forth training programs for key staff in accordance with particular commercial requirements, including new employee training, cashiers/foreign exchange operators/dealers/salespersons/advisory staff, staff dealing with account opening and with accepting new customers or business, staff who process settled transactions, and staff with responsibility for supervising or managing new staff.

Paragraph 13 of the AMLCP provides for a due diligence audit to be conducted by the FSC or a person designated by the FSC to verify compliance with the AMLCP or any other directive related to money laundering. However, there is no specific requirement for an audit testing function for AML/CFT measures under the institution’s own audit mechanism, whether internal or external. It would be advisable for the FSC to prescribe audit procedures for internal or external audit of AML/CFT to test the compliance with the AMLCP and Guidance Notes. Such audit testing reports should be made available to the FSC for enhanced supervision.

Paragraph 12 of the AMLCP requires appointment of a compliance officer to be approved by the FSC for ensuring compliance with the AMLCP. The compliance officer must be a senior officer with relevant qualifications and experience to enable him to respond sufficiently well to enquiries relating to the relevant person and the conduct of its business. Article 34 of the FSCA requires the appointment of a compliance officer, who may with the approval of the FSC also be appointed a compliance officer for AML under Paragraph 12 of the AMLCP.

The FSC has drafted a form for the approval of appointment of a compliance officer, which requires specific and detailed background information prior to approval. To date, the FSC has not required submission of these approval forms. Paragraph 12(2)(b) and (c) require that the compliance officer be responsible for establishing and maintaining a manual of compliance procedures and ensuring compliance by staff. To do so, the FSC is to prescribe specific guidelines. The FSC has not yet invited reporting persons to submit appointment of compliance officers for approval under these provisions. The FSC should complete both the approval form for compliance officers and finalize guidelines for duties of compliance officers as soon as reasonably practicable. Financial institutions are not specifically required to put in adequate screening procedures to ensure high standards when hiring employees, outside of fit and proper tests and approval by the FSC of the compliance officer, which may pose a risk of abuse of financial institutions.

Guidance Notes paragraphs 5 and 157 remind regulated institutions in the BVI to ensure that their branches, subsidiaries, and representative offices operating in other jurisdictions observe standards at least equivalent to these Guidance Notes.

Analysis of Effectiveness

The legal provisions for internal controls are sufficient. The AMLCP specifically requires financial institutions to maintain procedures concerning client identification, record keeping and internal reporting; to establish internal controls to assist in preventing money laundering; to make staff aware of the requirements of the Code of Practice and the firm’s compliance procedures; to train staff appropriately; to maintain a register of money laundering enquiries; and to appoint a compliance officer, approved by the managing director of the FSC. What is lacking is complete and thorough implementation and on-site and off-site supervision to ensure that regulated persons are in fact adhering to the requirements and have incorporated the required internal controls.

Financial institutions are required to establish and maintain internal procedures to prevent, detect, and report suspicious transactions. AML/CFT programs include internal procedures and policies and ongoing employee training. Institutions must perform their duty of diligence by having in place systems which enable them to verify the true identity of customers, keep records for the prescribed period of time, recognize and report suspicious transactions to the reporting authority, liaise closely with the RA on matters concerning vigilance policy and systems, train key staff, and ensure that internal auditing and compliance departments regularly monitor the implementation and operation of vigilance systems. Vigilance policy aims at guarding an institution against its business being used for laundering and/or the committing of any AML/CFT offence by the institution itself or its key staff.

The AMLCP requires that financial institutions appoint a senior staff to have the responsibility for the vigilance policy and vigilance systems, to act as internal focal point for receiving notification of suspicions, to decide whether suspicious transactions should be reported, and to report to the RA.

The Guidance Notes prescribe that key staff i.e. any employee of an institution who deals with customers/clients and/or their transactions should receive training. While each institution should design its training program in accordance with its particular commercial requirements, this training will generally aim at ensuring that key staff will react effectively to suspicious transactions and circumstances by reporting them to the relevant personnel. Guidance Notes require that at least, key staff should receive a copy of their company’s current instruction manual(s) relating to entry, verification, and records based on the recommendations contained in the Guidance Notes. Training should also include making the key staff fully aware of the AML/CFT legal and regulatory framework. Refresher training is prescribed in the Guidance Notes to ensure that key staff remain familiar with and are updated as to their responsibilities.

Financial institutions are required to ensure that their foreign branch and subsidiaries observe appropriate AML/CFT measures. The Guidance Notes specifies that where a group whose headquarters are in the BVI operates branches or controls subsidiaries in another jurisdiction, it should ensure that such branches or subsidiaries observe the Guidance Notes or adhere to local standards at least equivalent to the Guidance Notes, and it should keep all such branches and subsidiaries informed as to current group policy. Such branches or subsidiaries should also inform themselves as to their own reporting body and procedures for disclosing of suspicious transactions.

Recommendations and Comments

The AMLCP requires the appointment of a compliance officer responsible for ensuring compliance with the provisions of the BVI AML/CFT legal and regulatory framework, and prepare and submit to the FSC written reports on the financial institution’s compliance to the AMLCP or any other relevant law or directive. This compliance officer may be the same person as the reporting officer. With respect to the implementation of this provision, the FSC advises that an application form for the approval of appointment of compliance officers has been drafted but not finally approved yet. It is advisable that the FSC finalizes the application process. Next steps should involve enacting guidelines for compliance officers, and possibly organizing targeted training for them.

Although the general framework for instructing financial institutions to set up internal vigilance systems and policies is sufficient and well defined, there seems to have been limited attention given by the FSC to the assessment of the efficiency of these systems and of the overall compliance to the AMLCP and Guidance Notes. In addition to due diligence audits which empower the FSC to conduct inspections to verify compliance with the AML/CFT Code, laws or directives, thoughts should be given to the possibility for the FSC to prescribe audit procedures for internal and/or external audit of AML/CFT. See Recommendation under 2.2/I.

Implications for compliance with the FATF Recommendations 19, 20

While the AMLCP and the Guidance Notes have imposed legal requirements on financial institutions to develop internal control programs, the level of implementation of these requirements by financial institutions, particularly outside of the banking sector does not appear to be sufficient and the effectiveness of financial institutions’ programs is underdeveloped. Therefore, compliance with FATF Recommendation 19 is not complete. Of ongoing concern is that the BVI authorities do not verify that financial institutions ensure that the principles for internal controls are also applied to branches or subsidiaries outside of the jurisdiction, although the Guidance Notes do address this to some degree. Unlike other measures in the Guidance Notes, this requirement is not specifically tied to any provision in the AMLCP or the FSCA, so there is some concern that the application of AML/CFT controls to branches and subsidiaries operating abroad is not sufficiently defined in an enforceable legal instrument.

VII—Integrity standards (compliance with Criteria 62 and 63 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criterion114 for the securities sector)

Description

Fit and proper tests are required for obtaining and maintaining licenses for regulated entities, including banking and trust companies, company managers, and for insurance, although mutual fund managers and investment managers are not currently subject to a fit and proper test. Section 16 of the FSCA empowers the Licensing and Supervisory Committee of the FSC to supervise regulated persons to ensure that they continue to satisfy the fit and proper criteria for the conduct of financial services business. The FSC advises that applications for licenses must be renewed annually.

Details on the scope of fit and proper requirements for each sector can be found in the BCP, IAIS, and IOSCO detailed assessments. The detailed review of best practices for trust and company services providers contains discussion on best practices and the requirements for fit and proper that are applicable to company managers.

The BVI authorities are aware of the vulnerabilities that exist with respect to the misuse of corporate vehicles, particularly companies with bearer shares. The current KYC requirements provide some mechanisms to obtain necessary information about beneficial owners and the principals of corporate entities.

Analysis of Effectiveness

The BVI has an adequate and established system of requiring fit and proper tests for directors and senior management of financial intermediaries that is applied to banks, company managers, and insurance, although mutual funds managers and investment managers are not currently covered. The FSC has broad powers to assess the fitness and properness of individuals, including aspects of reputation and prior criminal record. Licensing for regulated entities is renewed yearly and the FSC may deny renewal on a wide variety of factors, including whether the license has been properly used.

There is some concern in the BVI about whether the companies registered, particularly those with bearer shares, are being misused for criminal purposes. As a result, the authorities are moving forward with a legislative proposal to immobilize bearer shares by requiring these be deposited with recognized financial institutions either in the BVI or abroad.

Recommendations and Comments

Fit and proper requirements should be required for mutual fund managers and investment advisers, and broker/dealers, as is contemplated to be introduced.

The proposal for immobilization of bearer shares should be enacted and measures should be developed to ensure that company managers and other financial intermediaries transacting financial business for companies ascertain that the beneficial owners of these companies can be ascertained through this immobilization mechanism.

Implications for compliance with FATF Recommendation 29

Fit and proper tests must be applied to mutual fund managers and investment advisers for compliance with FATF Recommendation 29. FSC supervision of the application of the fit and proper tests appears to be generally adequate and ongoing monitoring is achieved by the annual requirement for relicensing. Nevertheless, compliance with FATF Recommendation 29 should be enhanced by incorporating supervision for fit and proper into the on-site and off-site inspection procedures.

VIII—Enforcement powers and sanctions (compliance with Criteria 64 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 93-96 for the banking sector and criteria 115-117 for the securities sector)

Description

Enforcement tools available to the FSC are broadly provided in the FSCA. A particular strength is that the enforcement actions in the FSCA may be applied for failure to follow the Guidance Notes. Section 37(1)(a)(ii) of the FSCA empowers the FSC to take enforcement action against a regulated person if the person has contravened or is in contravention of the AMLCP or such other enactments, or guidelines relating to money laundering.

Section 38 authorizes the FSC to at any time revoke or suspend the license or certificate of a regulated person if the FSC is entitled to take enforcement action under Section 37.

Section 39 authorizes the FSC to apply for a protective order preventing the regulated person or any person from transferring, disposing, otherwise dealing with property, or to appointing an administrator to take over and manage the financial services business, among other actions.

Section 40 authorizes the FSC to issue a directive to a regulated person directing that person to cease engagement in any class or type of business, or not to enter into any new contracts for any class of business.

Analysis of Effectiveness

The legal provisions for sanctions and enforcement are adequate, but at this stage of implementation have not been applied for violations relating to ML/FT. Procedures for the FSC to invoke the enforcement tools and guidance on the application of specific sanctions to particular types of misconduct or to failure to comply remain incompletely defined.

Recommendations and Comments

Enforcement tools available to the FSC are compliant. Effective implementation of enforcement tools will require additional resources and development of internal procedures within the FSC, as well as additional training.

IX—Cooperation between supervisors and other competent authorities (compliance with Criteria 65-67 for the (i) banking sector; (ii) insurance sector; (iii) securities sector; and (iv) other financial institutions sector, plus sector specific criteria 97-100 for the banking sector and criteria 118-120 for the securities sector)

Description

Currently, the FSC’s Division for Legal and Enforcement is not adequately staffed, including vacancies for the Director, two deputy directors, and one enforcement officer. (Appendix 9 of the organizational chart of the FSC). Clearly, staffing needs to be more robust to effectively implement the requirements of the PCCA, AMLCP, and the Guidance Notes. Compliance levels within the financial sector cannot be properly monitored or ascertained until staffing is complete and such staff is properly trained. The managing director of the FSC advises that a number of these vacant positions will be filled in early 2003.

Section 29 of the FSCA provides for gateways of disclosure and gathering of information. The FSC has authority to disclose any information, document, record, statement, or thing to other regulatory, judicial or law enforcement authorities both locally and overseas for purposes of a legal assistance in the investigation of a criminal activity upon prior written consent of the Board of the FSC. No court authorization is necessary.

The FSIC governs the supervisory sharing of information with foreign regulatory authorities. The provisions in the FSIC must be read in conjunction with sections 30 and 32 of the FSCA. As stated above, Sections 4 and 5 of the FSIC allow for the sharing of records in the possession of the FSC with foreign authorities. The FSC advises that the procedures for exchange of information are formalized in the form of an undertaking to ensure compliance with the two laws on the subject.

As a matter of practice, the FSC advises that all request received that reveal sufficient detail are immediately treated as formal requests for information and at which point the requesting authority is asked to sign the undertaking and return the original. Concurrently, FSC will use its compulsory powers under Sections 30 and 32 of the FSCA to obtain the necessary information. When the undertaking is signed, the information will be forwarded. The undertaking sets out the controls governing the requests including an appendix excerpting the relevant provisions of the law. As a general matter, the FSC advises that the party receiving the information from the FSC requires only the FSC Board’s consent in order to further disclose the information. These further use provisions are set out in Sections 29 and 49 of the FSCA.

If requests for information do not contain sufficient detail, FSC treats these as informal requests and will send the requestor all publicly available information it has. The requestor has the opportunity to provide more specific details in order to obtain non-public information under the formal process.

At the time of the mission, only the managing director and the deputy director were authorized to decide upon requests, however, currently the director and deputy director of the Legal Services Division may also decide.

The FSC advises that all requests are initially responded to within 1 week. Non-formal requests are completed within 1–2 weeks while formal requests are completed on average, within 2–3 months. From January 2002 through November 2002, the FSC had processed 9 of 13 formal requests and had completed a total of 30 informal requests.

Additional specific provisions for information sharing with domestic competent authorities are found in Section 70(2) of the IA, Section 20 of the CMA, and Section 24 of the BTCA. These are discussed in detail in the BCP, IAIS, and IOSCO detailed assessments.

The Financial Services (International Cooperation) Act Sections 4, 5, and 7 provide for information sharing with counterpart prudential supervisors. The FSC advises that generally they regularly provide more information than they request. See also criterion 66.

Analysis of Effectiveness

Legal requirements for cooperation at both the domestic and international levels are sufficient to efficiently ensure the exchange of information necessary. On the domestic side, implementation of cooperation with domestic competent authorities, including the Police and the AGC should be reviewed and experience in invoking the cooperative measures should inform potential enhancements to ensure that the broadest possible cooperation is being used. Efforts should ensure that the broadest exchange of information is executed, including the exchange of confidential supervisory information subject to adequate protections on confidentiality and data protection.

Recommendations and Comments

Unfilled positions in Legal and Enforcement should be filled immediately with qualified staff and training should begin immediately to ensure that the enforcement tools and sanctions available to the FSC are meaningfully invoked.

Implications for compliance with FATF Recommendation 26

The legal framework confers broad authority on the FSC to ensure that financial institutions subject to the AMLCP and the Guidance Notes adopt sufficient, in depth policies for internal controls, and to guard against money laundering. The AMLCP provisions are sufficiently detailed to permit the FSC to exercise a strong hand in ensuring that financial institutions have both adequate polices and procedures in place, follow these procedures, and guard against money laundering. At this stage, the FSC must focus on the effectiveness of the internal controls adopted by supervised financial institutions.

Description of the controls and monitoring of cash and cross-border transactions

Table 7.

Description of Controls and Monitoring of Cash and Cross-Border Transactions

Table 7.

Description of Controls and Monitoring of Cash and Cross-Border Transactions

FATF Recommendation 22:

Description

The BVI does not have a specific system for detecting or monitoring the physical cross-border transportation of cash at present. Because the BVI uses the U.S. dollar, it would be difficult to estimate in absolute terms the appropriate level of cash movements across the border. The BVI does maintain statistics of liquidity in banks, which have the most cash intensive business. The Financial Secretary and Customs Service advise that a proposed customs form and declaration will require all persons entering BVI to declare cash of over US$5,000. Most cash entering outside of the banking system is seen to come through the airport and the West End seaport where ferries come in. The Customs Office advises that there are major cash seizures every few months, with amounts up to US$30,000 seized.

BVI laws authorize the Customs Office to seize and hold cash for up to 72 hours without a court order and, if needed, a magistrate’s order may be obtained. During the holding period the burden falls on the owner of the cash to prove that the funds derived from a legal source.

FATF Recommendation 23:

Description

Cash reporting is not feasible in the BVI, given the size of the jurisdiction and the limited resources available to law enforcement and other authorities. As a general matter, the authorities advise that cash is not the major basis for transactions within the BVI. Checks are most frequently used and credit cards are widely and increasingly relied upon for transactions. The very size of the jurisdiction makes large cash transactions notable when carried out, and the Guidance Notes specifically provide that reporting persons should pay particular attention to large and unusual cash transactions.

Interpretative Note to FATF Recommendation 22:

Description

N/A

View Table

Table 7.

Description of Controls and Monitoring of Cash and Cross-Border Transactions

FATF Recommendation 22:

Description

The BVI does not have a specific system for detecting or monitoring the physical cross-border transportation of cash at present. Because the BVI uses the U.S. dollar, it would be difficult to estimate in absolute terms the appropriate level of cash movements across the border. The BVI does maintain statistics of liquidity in banks, which have the most cash intensive business. The Financial Secretary and Customs Service advise that a proposed customs form and declaration will require all persons entering BVI to declare cash of over US$5,000. Most cash entering outside of the banking system is seen to come through the airport and the West End seaport where ferries come in. The Customs Office advises that there are major cash seizures every few months, with amounts up to US$30,000 seized.

BVI laws authorize the Customs Office to seize and hold cash for up to 72 hours without a court order and, if needed, a magistrate’s order may be obtained. During the holding period the burden falls on the owner of the cash to prove that the funds derived from a legal source.

FATF Recommendation 23:

Description

Cash reporting is not feasible in the BVI, given the size of the jurisdiction and the limited resources available to law enforcement and other authorities. As a general matter, the authorities advise that cash is not the major basis for transactions within the BVI. Checks are most frequently used and credit cards are widely and increasingly relied upon for transactions. The very size of the jurisdiction makes large cash transactions notable when carried out, and the Guidance Notes specifically provide that reporting persons should pay particular attention to large and unusual cash transactions.

Interpretative Note to FATF Recommendation 22:

Description

N/A

Ratings of compliance with FATF recommendations, summary of effectiveness of AML/CFT efforts, recommended action plan, and authorities’ response to the assessment

Table 8.

Ratings of Compliance with FATF Recommendations Requiring Specific Action

Table 8.

Ratings of Compliance with FATF Recommendations Requiring Specific Action

FATF Recommendation	Based on Criteria Rating	Rating
1—Ratification and implementation of the Vienna Convention	1	Largely Compliant
2—Secrecy laws consistent with the 40 Recommendations	43	Compliant
3—Multilateral cooperation and mutual legal assistance in combating ML	34, 36, 38, and 40	Compliant
4—ML a criminal offense (Vienna Convention) based on drug ML and other serious offenses.	2	Compliant
5—Knowing ML activity a criminal offense (Vienna Convention)	4	Compliant
7—Legal and administrative conditions for provisional measures, such as freezing, seizing, and confiscation (Vienna Convention)	7, 7.3, 8, 9, 10, and 11	Largely Compliant
8—FATF Recommendations 10 to 29 applied to nonbank financial institutions; (e.g., foreign exchange houses)		See answers to 10 to 29
10—Prohibition of anonymous accounts and implementation of customer identification policies	45, 46, and 46.1	Compliant
11—Obligation to take reasonable measures to obtain information about customer identity	46.1 and 47	Largely Compliant
12—Comprehensive record keeping for five years of transactions, accounts, correspondence, and customer identification documents	52, 53, and 54	Compliant
14—Detection and analysis of unusual large or otherwise suspicious transactions	17.2 and 49	Materially non compliant
15—If financial institutions suspect that funds stem from a criminal activity, they should be required to report their suspicions promptly to the FIU	55	Largely Compliant
16—Legal protection for financial institutions, their directors, and their staff if they report their suspicions in good faith to the FIU	56	Largely Compliant
17—Directors, officers, and employees should not warn customers when information relating to them is reported to the FIU	57	Compliant
18—Compliance with instructions for suspicious transactions reporting	57	Largely Compliant
19—Internal policies, procedures, controls, audit, and training programs	58, 58.1, 59, and 60	Largely Compliant
20—AML rules and procedures applied to branches and subsidiaries located abroad	61	Largely Compliant
21—Special attention given to transactions with higher risk countries	50, and 50.1	Materially non compliant
26—Adequate AML programs in supervised banks, financial institutions or intermediaries; authority to cooperate with judicial and law enforcement	66	Largely Compliant
28—Guidelines for suspicious transactions’ detection	17.2, 50.1, and 55.2	Compliant
29—Preventing control of, or significant participation in, financial institutions by criminals	62	Largely Compliant
32—International exchange of information relating to suspicious transactions, and to persons or corporations involved	22, 22.1, and 34	Compliant
33—Bilateral or multilateral agreement on information exchange when legal standards are different should not affect willingness to provide mutual assistance	34.2 and 35.1	Largely Compliant
34—Bilateral and multilateral agreements and arrangements for widest possible range of mutual assistance	34, 34.1, 36, and 37	Compliant
37—Existence of procedures for mutual assistance in criminal matters for production of records, search of persons and premises, seizure and obtaining of evidence for ML investigations and prosecution	27, 34, 34.1, and 35.2	Compliant
38—Authority to take expeditious actions in response to foreign countries’ requests to identify, freeze, seize and confiscate proceeds or other property	11, 15, 16, 34, 34.1, 35.2, and 39	Largely Compliant
40—ML an extraditable offense	34 and 40	Compliant
SR I—Take steps to ratify and implement relevant United Nations instruments	1 and 34	Compliant
SR II—Criminalize the FT and terrorist organizations	2.3, 3, and 3.1	Compliant
SR III—Freeze and confiscate terrorist assets	7, 7.3, 8, and 13	Compliant
SR IV—Report suspicious transactions linked to terrorism	55	Compliant
SR V—provide assistance to other countries’ FT investigations